Character.AI, a service that lets people create AI characters and chat with them, has filed for Chapter 11 bankruptcy protection after five years in operation. The filing follows a series of lawsuits and difficulties scaling the platform. CEO Colin Adams says the board has chosen to pursue a court-supervised sale.
Board chooses a court-supervised sale
In a court filing, the company listed assets of $50 million to $100 million and liabilities in the same range. Adams linked the decision to legal, regulatory and operational challenges facing the business.
Adams said the board reviewed the available alternatives and concluded that a court-supervised sale offered the best chance of maximizing value for all stakeholders. He also said the company had taken steps over the past year to sustain and improve its business.
Operations to continue while a buyer is sought
Adams says Character.AI will keep operating during the sale process. The process is expected to conclude in late November or early December. He also said there was not yet a bid for the assets or a buyer for this sale.
Adams said the platform’s future depends on securing an actionable bid that would allow the service to continue. If no such bid emerges, Character.AI will wind down its operations.
Disney to acquire some assets and a technology license
Alongside the court-supervised sale process, Character.AI has agreed to sell some assets to Disney for $20 million. The agreement also includes a non-exclusive, perpetual license to the startup’s technology.
Character.AI says Disney will also provide transition services. Those services will be delivered by former startup employees who joined Disney last month alongside former CEO Karandeep Singh Anand.
Lawsuits and a child-safety investigation
The legal challenges included a lawsuit filed after the suicide of a 14-year-old boy in Florida. His mother alleges that he became obsessed with a chatbot on the platform. Texas subsequently opened an investigation into whether the service complied with child privacy and safety laws.
Character.AI later settled some lawsuits and added safety features. It also banned minors from using the platform.
