Character.ai files Chapter 11; Disney steps in as stalking horse bidder

Character Technologies has voluntarily filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware, according to a statement.

The company intends to continue operating its platform as it conducts the sale process.

Disney (DIS) will serve as the stalking horse bidder for a non-exclusive perpetual license of certain company intellectual property and claims in exchange for $20M and Disney’s provided transition services.

If the sale process does not result in a purchase that provides for a continuation of the Character.ai platform, the platform will be wound down. The deal is expected to close in late Nov. or early Dec.

Character Technologies has estimated assets of between $50M-$100M, according to a filing to the Delaware court.

"Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds," said Colin Adams, CEO of Character.ai.

Reuters earlier this month reported that chatbots created by Character.AI sometimes advised users to cut, starve, or kill themselves, citing a new filing by Kentucky’s attorney general in a lawsuit against the firm over child ‌safety.

Character.AI was founded by two former Google (GOOGL) (GOOG) employees.

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