Character.AI files for Chapter 11 bankruptcy with Disney named initial bidder

Character.AI announced late Monday night that it had filed for Chapter 11 bankruptcy protection. The company plans to sell all or substantially all of its assets through a court-supervised sale process. Disney has agreed to serve as the initial bidder for this transaction.

The media giant is offering $20 million for a non-exclusive, perpetual license to certain intellectual property and claims. Other potential buyers can still submit higher or better offers during the review period. Character.AI expects to complete the sale process by late November or early December.

In its court filing, the startup listed between $50 million and $100 million in estimated assets. Reuters reported that liabilities were of the same range according to documents filed in Delaware federal court. These figures highlight the financial stakes involved in the legal proceedings.

For now, Character.AI says its platform will continue operating without any major disruptions. Disney plans to lend back former staff it has hired to help keep the platform running safely for a while. However, the company warned that it could eventually shut down the service if it fails to find a buyer willing to keep it running.

This bid follows news that Disney hired former Character.AI CEO Karandeep Anand as a senior executive vice president last month. He is taking on the role of chief technology officer at the media company. Several technical employees from the startup were also expected to join Anand at Disney.

The platform has faced significant legal and regulatory headwinds over the past year. Earlier this year, the company settled multiple lawsuits brought by families alleging their children suffered psychological harm. CEO Colin Adams stated that the sale process provides the best opportunity to maximize value for stakeholders.