Disney bids $20M for Character.AI's code in bankruptcy

Character Technologies Inc., the company behind the chatbot app Character.AI, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware, with Disney Worldwide Services attached as the stalking horse bidder on a $20 million offer for part of the startup's technology.

The filing, announced by the company on October 13, opens a court-supervised sale of all or substantially all of Character.AI's assets under section 363 of the Bankruptcy Code. The company said it will keep the platform running through the process. The case is number 26-11603.

Disney is the stalking horse, the opening bidder whose offer sets the floor for a sale rather than a completed purchase. According to the bidding procedures motion filed with the court, Disney Worldwide Services would receive a perpetual, worldwide, non-exclusive license to certain Character.AI intellectual property and related technology, plus any unreleased claims against the employees it hired. In return it pays $20 million and provides transition services that use those former employees to keep the platform running.

The papers show Disney paid $7.5 million of the $20 million before the petition was filed, $2 million of it a refundable good-faith deposit, or 37.5% of the total cash consideration. The proposed procedures set a $700,000 break-up fee and require a challenger to top Disney by that fee plus $1 million, a floor of $21.7 million of PPC Land's reading of the motion. Bids are due November 20, an auction is set for November 23 and a sale hearing for November 24.

The license buys access to Character.AI's code for training, safety and serving systems and nine patents, according to PPC Land's account of the transaction documents. The deal excludes the app, the brand, the domains, user data and chats, training data and finished models, which stay in the estate for other bidders.

The people are the larger transaction. Disney named Karandeep Anand, Character.AI's former chief executive, as its chief technology officer, as Variety reported. Of about 86 full-time employees at the end of September, 66 had accepted jobs at Disney, and a term sheet estimates roughly 65 offered employees at about $60 million in annual run-rate compensation plus a $30 million retention pool, or about $180 million over three years. That money is payable to the employees directly and does not pass to the company.

Character.AI went into the case with about 12 million monthly active users, roughly $2.5 million a month in advertising sales and $57 million in unrestricted cash, according to PPC Land. The structure echoes Google's mid-2024 deal for the startup's founders and its technology, which the first-day declaration values at about $2.7 billion in total consideration. Character.AI has also faced litigation over chatbot safety, and Variety reported it settled several lawsuits alleging mental health harms in January 2026.

Colin Adams, Character.AI's chief executive, said in the announcement that the board compared the alternatives and picked the court process. "The board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders," Adams said.

If no buyer commits to carrying the platform forward, the company has said the app will be wound down. For creators, the case is a test of what a consumer AI platform's core technology is worth in bankruptcy, and because Disney's license is non-exclusive, the same code could end up with a second buyer.

The next step is a court hearing on the bidding procedures, which Disney requires to be approved by November 2. Character.AI expects the sale process to close in late November or early December 2026.