Character.AI files for bankruptcy as Disney bids $20M for some assets

Character.AI has filed for Chapter 11 bankruptcy in the US and lined up Disney as the first bidder for some of its assets, the company said on Monday.

The AI chatbot platform, owned by Character Technologies, filed in a federal court in Delaware. It plans to sell all or most of its assets through the court. Founded in 2021, the platform lets users chat with AI characters.

Disney will pay $20 million for a non-exclusive, permanent licence to some of Character.AI’s intellectual property and certain legal claims. It will also lend back former Character.AI staff it has hired to help keep the platform running safely for a while.

The Disney offer acts as a floor, and rival buyers can still bid more. Character.AI has asked the court to approve those bidding rules, and it expects the sale to close in late November or early December.

“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, Character.AI’s chief executive.

Those headwinds have been heavy. In January, the company settled five lawsuits over teen mental health crises and suicides. Since then, it has faced more legal claims from families and US states.

Disney’s ties to the company are also recent. In September, it hired Karandeep Anand, then Character.AI’s boss, as its first group-wide technology chief. A year earlier, Disney had told Character.AI to stop hosting chatbots that copied its characters.

Character Technologies listed estimated assets and liabilities of between $50 million and $100 million in its court filing, Reuters reported.

Meanwhile, Character.AI plans to keep its app and website running with little disruption. It has asked the court to allow it to continue paying staff and suppliers. If no buyer wants to keep the platform going, it will be shut down, the company said.