Character Technologies, Inc., the operator of Character.AI, filed Chapter 11 on October 12, 2026, in Delaware. The company is seeking approval of a proposed $20 million transaction with Disney Worldwide Services, Inc. covering a perpetual, non-exclusive intellectual property license and specified employee claims. Adams declaration, pp. 1–3, ¶¶ 1, 4; Bidding-procedures motion, transaction summary, pp. 12–13
Apart from the licensed rights and employee claims, the proposed terms leave Character’s assets, business, and operations with the debtor. The motion also seeks authority to designate additional stalking-horse purchasers. The Disney proposal remains subject to the requested court approval and closing conditions. Bidding-procedures motion, transaction summary, p. 13; Hearing notice, p. 1
This account covers the supplied filings dated October 12–14, 2026.
The transaction summary specifies $20 million in cash consideration. Disney would receive a perpetual, worldwide, non-exclusive license to specified technology and patents. It would also acquire any unreleased claims Character holds against former employees who accept employment with Disney or its affiliates. Bidding-procedures motion, transaction summary, pp. 12–13
The proposed terms identify a $2 million good-faith deposit to be held in a separate designated account. The deposit would become property of the bankruptcy estate only when released from escrow under the agreement or by court order. Bidding-procedures motion, transaction summary, p. 16
Character would retain its remaining assets, business, and operations, along with responsibility for its liabilities. The summary states that Disney would not assume Character’s liabilities. It also describes Disney’s agreement to hire certain employees and provide transition services under a transition-services agreement dated September 18, 2026. Bidding-procedures motion, transaction summary, pp. 12–13, 16
Requested sale procedures and scheduled hearing
The motion seeks approval of bidding procedures, Disney’s designation as stalking-horse purchaser for the Disney target assets, and authority to designate additional stalking-horse purchasers. The transaction summary provides that the Disney agreement would be subject to higher or otherwise better offers through the sale process. Hearing notice, p. 1; Bidding-procedures motion, transaction summary, p. 19
The requested Disney bid protections consist of a break-up fee and reasonable expense reimbursement collectively capped at 3.5% of the purchase price, or $700,000. The proposed protections have specified triggers, including an alternative transaction involving the Disney target assets, and remain subject to court approval. Bidding-procedures motion, transaction summary, p. 19
The agreement separately identifies December 17, 2026, as its outside closing date unless the parties agree otherwise in writing. Disney’s termination right for failure to close by that date is subject to an exception for delay caused by Disney’s breach. This contractual milestone does not establish that the sale has closed. Bidding-procedures motion, transaction summary, p. 16
Interim employee-compensation relief
An interim order authorizes, but does not direct, payment of specified prepetition employee obligations and related expenses up to an aggregate $1.361 million, subject to the order’s limits. It also permits continuation of employee compensation and benefit programs, while reserving the severance program for a final order. These authorizations do not establish that the permitted payments have been made. Interim employee-compensation order, ¶¶ 1–4
States raise safety and privacy concerns for purchasers
An October 14 notice from state attorneys general describes ongoing consumer-protection and privacy investigations. The states say negotiations with Character did not produce agreement before bankruptcy and ask that any sale or transfer address unresolved regulatory concerns. These statements represent the states’ positions and allegations. States’ notice, pp. 3–4
The states seek safeguards addressing age assurance, protections for minors, misleading professional personas, crisis responses, sensitive-data processing, advertising opt-outs, secondary data use, consumer access and deletion, and truthful marketing. They argue that Character’s voluntary restrictions on minors’ access can be circumvented or reversed and that purchasers should maintain appropriate safety and privacy programs. States’ notice, ¶¶ 24–25 and proposed safeguards, pp. 23–24
The states reserve the right to seek a consumer privacy ombudsman, object to proposed sales, bidding procedures, or a plan, and seek other relief. The notice itself does not appoint an ombudsman or impose the requested protections. States’ notice, p. 25
Claims administration
The court authorized Stretto’s appointment as claims and noticing agent effective as of the petition date. Its responsibilities include maintaining the official claims register, administering proofs of claim, and providing an electronic interface for filing them. Stretto appointment order, ¶¶ 4–6
Sources
Adams declaration, pp. 1–3, ¶¶ 1, 4 /documents/32db5d6c-7bec-415f-9e95-875bfbf23e11/
Bidding-procedures motion, transaction summary, pp. 12–13 /documents/f7ce8bd1-08f0-450a-88a5-4ad8b74a2c60/
Hearing notice, p. 1 /documents/16de5abb-ccda-4172-bff5-9524d043d221/
Petition, p. 1 /documents/2848a4cf-6595-47bd-8b9c-7e3b2ec071d6/
This article was researched and written with AI assistance, using court filings, public records, and news sources. AI-generated content can contain errors. Verify all information against primary sources before relying on it. This is not legal or financial advice. See the disclaimer.