Character.AI Bankruptcy Court Approves Bidding Procedures and Disney Stalking-Horse Deal
On November 4 2026 the Delaware Bankruptcy Court approved bidding procedures for Character.AI's Chapter 11 asset sale. Disney is the stalking-horse buyer for certain assets…
- The court-approved process sets a November 24 bid deadline, December 1 auction and December 3-4 sale hearing for Character.AI assets.
- Disney's stalking-horse agreement covers sale or license of designated assets free and clear of liens, plus assumption of related transition and exclusivity agreements.
- The structured sale will determine the next owner of the platform's models, data and intellectual property.
What the November 4 Court Order Does
Character.AI filed its Chapter 11 petition on October 12 2026. The November 4 order approves bidding procedures that govern the sale of all or substantially all assets under section 363 of the Bankruptcy Code.
It designates Disney Worldwide Services, Inc. as the initial stalking-horse purchaser for specific Disney Target Assets via an agreement dated October 13 2026. The order also allows the debtor to designate additional stalking-horse purchasers for other assets.
The approved Transaction Notice outlines the process, deadlines and protections that will apply if Disney or another bidder prevails.
Key Terms of the Disney Stalking-Horse Transaction
The deal includes the sale or license of assets free and clear of liens, claims and encumbrances. It requires court approval of the Stalking Horse Transaction Agreement together with a pre-petition Transition Services Agreement and Exclusivity and Prepayment Agreement dated September 18 2026.
The proposed sale order would find the marketing process fair, confirm arm's-length negotiations, state that Disney is not a successor to Character.AI, shield Disney from successor-liability claims, and provide broad exculpation and releases for Disney and related parties covering employee recruitment, transition services and licensed intellectual property.
Special committees of the debtor's board, whose members were disinterested, oversaw the process and recommended the transaction.
Deadlines and Auction Process
Interested bidders must contact Houlihan Lokey and Wilson Sonsini by the November 24 2026 deadline at noon Eastern. Sale objections are due November 18 at 4 p.m. Eastern.
An auction is scheduled for December 1 at 10 a.m. Eastern unless cancelled. The sale hearing will occur December 3 and 4 at 9:30 a.m. Eastern.
All documents including the bidding procedures order, stalking-horse agreement and proposed sale order are available on the Stretto case website at cases.stretto.com/chartech.
Why it matters for uncensored AI
Character.AI's platform hosts customizable AI companions that users rely on for open-ended conversation. The approved sale process will transfer control of the underlying models, data practices and platform policies to a new owner.
Our analysis starts from the source fact that the court has approved bidding procedures and a stalking-horse agreement that explicitly covers licensed intellectual property and transition services. This means the winning bidder will gain authority over how the service operates going forward.
That shift affects users' practical choices about which platform rules and content guidelines will govern their companions after the December hearing.
