Character Technologies defends the Disney transaction and bidding protections

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State attorneys general object to Character.AI's Disney-led auction rules; company defends the process

In Character Technologies' Delaware bankruptcy, a coalition of states objected on October 23, 2026, to proposed auction rules involving Disney Worldwide Services, Inc. The states argue that hiring, releases and bid protections could disadvantage rival bidders and limit scrutiny of earlier transactions. They say the estate would receive at most $20 million in total, including a $5.5 million prepetition payment. The debtor's proposed reply, attached to an October 27 motion for leave to file late, defends the arrangement as necessary to preserve operations and value. It says a winning rival could receive transition services and extend offers to 80% of former employees now at Disney. Disney's bid covers a non-exclusive license and any unreleased estate claims against employees it hired; the license excludes the app, user data and trained models. The U.S. Trustee filed a separate objection. On November 4, Judge Brendan L. Shannon entered an order approving the bidding procedures, Disney's designation as stalking horse and a $700,000 break-up fee and expense reimbursement, and overruling objections that were not resolved. Bids are due November 24, and the sale hearing is set for December 3 and 4.