AI entertainment platform Character.AI has filed for Chapter 11 bankruptcy in the U.S. to facilitate a sale of its assets. The company has entered into an agreement with Walt Disney Worldwide Services Inc. to sell certain intellectual property and claims for $20 million, with Disney serving as a stalking horse bidder.
The bankruptcy filing and asset sale of Character.AI, an AI entertainment platform, highlights the financial and operational challenges some companies in the rapidly evolving AI sector face, even with potential strategic interest from major players like Disney.
Character Technologies Inc., known as Character.AI, has initiated a voluntary Chapter 11 bankruptcy proceeding in the U.S. Bankruptcy Court for the District of Delaware. The company aims to facilitate a value-maximizing sale of all or substantially all of its assets through this court-supervised process. Character.AI intends to continue operating its platform during the sale process.
Prior to the filing, Character.AI reached an agreement with Disney Worldwide Services Inc. under which Disney will act as a stalking horse bidder. The proposed transaction involves a non-exclusive perpetual license of certain intellectual property and certain company claims in exchange for $20 million. Disney will also provide transition services using former Character.AI employees it has hired, which will assist the company in operating its platform for a limited time and support the sale process. This transaction is subject to higher or better offers.
Character.AI CEO Colin Adams stated that the board determined the court-supervised sale process offers the best opportunity to maximize value for all stakeholders, citing significant legal, regulatory, and operational headwinds over the past year. The company has filed motions for approval of bidding procedures designed to achieve the highest offers for its assets.
Character.AI expects to continue its business operations, including the Character.AI platform, with minimal disruption. It has filed customary first-day motions to continue paying employees, honor commitments to users, and satisfy obligations to vendors and partners. If the sale process does not result in a purchase that allows for the continuation of the platform, it will be wound down. The company was founded in 2021.
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