Character Technologies, the bankrupt operator of Character.ai, on October 30, 2026 filed a rewritten version of the notice that will tell creditors and bidders about the sale of its assets, and the new text lists, for the first time, the legal protections Disney Worldwide Services would receive if it wins. The filing, Docket No. 90 in the US Bankruptcy Court for the District of Delaware, adds ten provisions of Disney's proposed sale order to a form that previously said only that the assets would be sold "free and clear of all encumbrances." Among them is a release by the company of Disney and the former Character.ai staff it hired, covering claims from "the beginning of time" through the closing of the sale or the entry of the sale order, whichever comes later.

In Short

Character.ai is bankrupt and is selling what it owns, starting with a $20 million deal in which Disney licenses some of its technology. The letter that tells creditors about the sale used to say almost nothing about what Disney gets in return, so after objections from 39 states, DC and others, the company rewrote it to list the shields Disney would receive, including Character.ai giving up any claims against Disney and the staff it hired over nearly everything that happened before the sale. Under the proposed calendar, anyone who wants to fight those terms has until November 13, 2026, a week before bids are due, and after the auction only a few narrow points can still be raised.

The filing

The notice sits in case 26-11603 (BLS), In re Character Technologies, Inc., before Judge Brendan L. Shannon. It is short: a two-page cover notice signed by Heather P. Lambert of Wilson Sonsini Goodrich & Rosati, proposed counsel to the debtor in possession, followed by the revised form itself (Exhibit A) and a blackline comparing it with the earlier version (Exhibit B). The earlier version was Exhibit 2 to the proposed bidding procedures order attached to the company's sale motion of October 13 (Docket No. 15). A revised version of that order was filed on October 27 as Docket No. 74.

The cover notice gives the reason for the change in one clause. The company "has proposed certain revisions to the Transaction Notice," it says, "in response to certain informal comments received and filed objections." It does not say who made the informal comments.

The timing was tight. The company said it intended to present the bidding procedures order, "including the Revised Transaction Notice, at a hearing scheduled for October 30, 2026 at 9:00 a.m. (ET)" in Courtroom No. 1 on the sixth floor at 824 N. Market Street in Wilmington. Earlier filings in the case, including the states' objection, gave the start time as 10 a.m.; the notice does not explain the difference. The company "reserves all rights to modify" the order and the notice "at or in advance of the Hearing." How the hearing ended is not part of the filing.

The revised form is still a template. The date of the bidding procedures order and its docket number are left blank, the form's own date reads "[●], 2026" and its signature line reads "/s/ Draft." It is written as if the court has already acted: "the Court has approved the Debtor's designation as a stalking horse agreement, the Stalking Horse Transaction Agreement, dated as of October 13, 2026." The earlier version said only that the company "has entered into" an agreement dated "October [●]."

What the old notice left out

The complaint came from the coalition of state attorneys general. In their October 23 objection, reported when 32 states said Character.ai's sale rules block bids that would beat Disney, the states argued that the form told readers nothing about an injunction in Disney's proposed sale order against claims by litigants and government authorities, the bars on successor liability, or the approval of the releases agreed with Disney in September. A creditor reading it, in the states' view, would not have guessed that claims against people other than the company were at stake. They asked for a plain-language notice served on personal-injury claimants and posted on the Character.AI platform itself. Eight more states joined that objection on October 28, bringing the coalition to 39 states and the District of Columbia.

The company answered on October 27. Its reply kept the $21.7 million minimum overbid and the $700,000 break-up fee, but said it would propose a revised notice to address the states' concerns, as reported when Character.ai kept its $21.7m bid floor for Disney rivals despite 32 states. Docket No. 90 is that revision.

Ten provisions, now on the page

The new section opens with a condition. "If Disney is a Winning Bidder, the Debtor will seek entry of the proposed form of order approving any Sale to Disney," the notice says, pointing to Docket No. 15-2, "which order includes, among others, provisions" on ten subjects. Every one of them is new text in the blackline.

One integrated deal

The first three provisions bundle the transaction. The order would approve "a single, interrelated, and integrated transaction" made of three documents: the stalking horse agreement of October 13, 2026; a transition services agreement between Disney and the company dated September 18, 2026; and an Exclusivity and Prepayment Agreement of the same date, which the notice treats as part of the transition services agreement. The order would transfer what the filings call the Disney Target Assets "free and clear of all liens, claims, interests, and encumbrances to Disney," and the company would assume the transition services agreement under sections 363 and 365 of the Bankruptcy Code.

The September 18 documents predate the bankruptcy by more than three weeks. Under them, Disney paid $7.5 million before the filing, $5.5 million of it non-refundable, according to the company's earlier filings.

Findings about the process

Three provisions are findings about how the deal was reached. The company would be found to have shown "good, sufficient, and sound business purposes" for the deal. Special committees of its board, "the members of which are each disinterested with respect to the Transaction," would be found to have "led the strategic direction of the marketing process and all negotiations with Disney." The marketing would be found "robust and extensive," run "both before and after the commencement of this Chapter 11 Case," and "substantively and procedurally fair to all parties and all potential bidders." And the agreement would be found to have been negotiated "at arm's length, in good faith, and without collusion" under section 363(m), the provision that keeps a good-faith buyer's purchase from being undone on appeal unless the sale was stayed.

Those findings sit on contested ground. The company's investment banker reported one unusable offer from 28 potential buyers, as covered when Character.ai drew one unusable offer from 28 potential buyers. The same declaration said the banker had no part in the September talks with Disney. The states had asked the court to strike the good-faith findings; the company's reply said the committee that approved the Disney terms was formed in early September and made up solely of independent directors.

Successor liability and an injunction

Two provisions keep the company's liabilities away from Disney. The order would find that neither Disney nor its "related Buyer Parties" is a successor to the company, has "de facto merged" with it, is "a joint employer, co-employer or single integrated enterprise" with it, or is its "alter ego or mere continuation," and that no Buyer Party is responsible for any of its liabilities "unless expressly assumed in writing." It would also enjoin "parties and entities from commencing or continuing actions against Disney" over claims against the company or its assets, "or under any theories of successor liability."

The joint-employer language matters because of how the deal was built. Disney hired most of the company's workforce before the filing; Character.ai lost 66 of its 86 staff to Disney ahead of the bankruptcy sale. The arrangement, a license plus the hiring of the team, follows the pattern known as an acqui-hire.

Exculpation for transition services

The ninth provision is the broadest in reach. It would exculpate Disney, its affiliates and their officers, directors, employees, contractors and others, defined as the TSA Exculpated Parties, "from any liability to any person or entity" for claims "arising, directly or indirectly, from (i) the administration, implementation, or performance of the TSA or (ii) the provision, management, or oversight of the transition services under the TSA." It does not release the parties from their obligations under the agreement or cover acts "determined by final order of the Court to constitute willful misconduct, bad faith, or gross negligence."

Unlike a release by the company, which binds the estate, this provision runs against "any person or entity." The services it covers are not peripheral. According to the company's October 27 reply, roughly 17 people now employed by Disney can assist with trust and safety on the platform under the agreement, and a wind-down, if no buyer for the platform appears, would rely on Disney's transition services.

The release

The tenth provision is the longest. The company, "for itself and on behalf of its affiliates," would release Disney, its affiliates and its representatives, including former Character.ai employees, consultants and service providers it hired (the Hired Employees), "from any and all past, present and future claims of any kind or nature or description whatsoever." The period runs "from the beginning of time up to and through either the closing of the Sale to Disney or entry of the Proposed Disney Sale Order, whichever is later."

Five categories are named, though the release is not limited to them: the negotiation of the sale; "the recruitment, solicitation, hiring, employment or engagement by Disney" of the company's current or former staff; "any wind-up, liquidation, dissolution or cessation of the Debtor's business or sale or license of its assets, including the termination of any Company Service Provider"; services provided by those staff to Disney or by hired employees back to the company; and "the Licensed IP transferred pursuant to the Sale."

The end date is the detail that changes. The release signed in September, as the states described it, ran through September 18, 2026. The sale-order release summarized in the notice runs at least to the entry of the sale order, which the proposed calendar puts no earlier than the November 24 sale hearing. By PPC Land's count, that is at least 67 more days of conduct covered, and 90 if the deal closes on Disney's outside date of December 17. Among the hired employees is Karandeep Anand, the company's former chief executive, who is now Disney's chief technology officer, as PPC Land reported when Disney paid $20m for Character.ai's IP and $180m for its staff.

A footnote on personal data

One footnote is new as well: "The Disney Target Assets exclude PII (as defined by section 101(41A) of the Bankruptcy Code)." It restates Disney's position, set out in the company's reply, that it is not buying personally identifiable information and that its agreement should not be reviewed by a consumer privacy ombudsman. A day before the notice was filed, 39 states and DC said Character.ai user data needs a privacy ombudsman to the extent any property that may contain users' personal or "sensitive" information is sold. The footnote uses the narrower statutory term and says nothing about chat content.

The other changes

The blackline shows four more edits outside the Disney list.

  • Wider sale language. The opening paragraph now says the assets will be sold "free and clear of all liens, claims, interests, and encumbrances" and adds "to the fullest extent authorized by section 363 of the Bankruptcy Code." The earlier text, quoted by the states, read "free and clear of all encumbrances."
  • Other stalking horses. The earlier form said the procedures "authorize, but do not require, the Debtor to designate any Additional Stalking Horse Purchaser." The revision says they "contain a process for designation of other Additional Stalking Horse Purchasers and related asset purchase agreements for Assets other than the Disney Target Assets." That matches the disclosure-and-hearing step the company offered in its reply, and it confines any further stalking horse to assets outside Disney's license, such as the app, the brand and the user base.
  • Rival sale orders. A new paragraph says the Disney order, "including the provisions noted above (as applicable to a particular sale), may be modified for approval of the sale of the Debtor's Assets to non-Disney parties." The company had already said rival bidders do not have to include a Disney release in their own orders. A rival that wants Disney's transition services must still grant one, a point the states pressed when 8 states said Disney keeps Character.ai's ex-CEO and staff even if outbid.
  • Brackets and a missing time. The bid deadline, sale objection deadline, auction and sale hearing now sit in square brackets. The sale hearing has a date, November 24, but its time is still blank, and the phrase "subject to the Bankruptcy Court's availability" has been deleted.

What can still be contested after the auction?

The most practical change for creditors is a new paragraph on timing. "As soon as practicable following the conclusion of the Auction, the Debtor will file a notice identifying the Winning Bidder(s)," the revised form says. After that, "parties may raise objections solely with respect to the conduct of the Auction, the Winning Bidder (only if not a Stalking Horse Purchaser), modifications to any Stalking Horse Agreement, and adequate assurance of future performance by a Winning Bidder other than any Stalking Horse Purchaser." These are called Supplemental Sale Objections, to be heard at the sale hearing.

Read with the calendar, the paragraph sets two tracks. If a rival that was not a stalking horse wins, creditors can object to that buyer once its identity is known. If Disney wins on its existing terms, the only later objections available concern the conduct of the auction or any changes to Disney's agreement. Everything else, including the release, the exculpation and the injunction, would have to be raised by the sale objection deadline of November 13 at 4 p.m. Eastern. That is 14 days after the notice was filed, seven days before bids are due on November 20 and ten days before the auction on November 23, by PPC Land's count.

The states had asked for the objection deadline to be moved after the winner was announced. The company refused in its reply, calling that impracticable and pointing to existing rights to object to the conduct of the auction. The revision spells out those rights in the notice. It does not move the deadline.

What the revision does not do

Several of the states' requests are not reflected in the text. The injunction is described as applying to "parties and entities," without naming litigation claimants or government authorities. Product liability is not mentioned. No individual is named, including the former chief executive. The notice gives no price, no break-up fee and no minimum overbid. And it says nothing about who will receive it or whether it will be posted on the platform; distribution is a matter for the bidding procedures order, which is not part of Docket No. 90.

The closing warning is unchanged: a party that misses the deadline "MAY BE BARRED FROM OBJECTING TO THE SALE AND BEING HEARD AT THE SALE HEARING."

Why this matters for the marketing industry

Character.ai is an advertising-funded consumer AI product. Its advertising revenue reached about $2.5 million in August 2026, close to half of its monthly revenue, according to the chief executive's first-day declaration, which also showed the company losing $8m a month. Its creditors include vendors and partners, and claims against it, by the states' account, arise largely from minors' use of the platform. For all of these parties, the notice is the document that says what is given up by staying silent.

The deal's shape is also one the advertising and technology industries have seen before: a large company hires a startup's team, licenses its technology and leaves the rest behind. The revised notice shows what Disney asks a bankruptcy court to confirm in return. It would be no successor and no joint employer, it would be released from claims over the hiring itself and over the wind-down of the business it leaves behind, and it would be exculpated for the transition work its new employees perform.

What remains in the estate is the part most relevant to advertisers: the app, the brand and the accounts of millions of users. The new footnote keeps Disney away from that personal data. Whoever bids for it will still face the privacy questions the states and the US Trustee have put on the record.

Timeline

Summary

Who: Character Technologies, Inc., operator of Character.ai, represented by Wilson Sonsini Goodrich & Rosati, in a sale with Disney Worldwide Services, Inc. as stalking horse purchaser, after objections from a coalition of 39 state attorneys general and the District of Columbia and from the US Trustee.

What: A notice (Docket No. 90) filing a revised form of the transaction notice that will tell creditors and bidders about the sale, with a blackline against the original. The revision lists ten provisions of Disney's proposed sale order, including findings that Disney is not a successor or joint employer, an injunction against successor-liability suits, an exculpation for transition services that runs against any person, and a release by the company of Disney and its hired staff from the beginning of time through closing or entry of the order. It also adds a footnote excluding personal data from Disney's assets and a limited window for objections after the auction, while keeping the November 13 objection deadline ahead of the November 20 bid deadline.

When: Filed October 30, 2026, the day of the hearing on the bidding procedures, which the notice puts at 9 a.m. Eastern.

Where: The US Bankruptcy Court for the District of Delaware, case 26-11603 (BLS), before Judge Brendan L. Shannon.

Why: The states argued that the original notice did not tell creditors that claims against Disney and former company staff were at stake, and the company promised a revision in its October 27 reply. For advertisers, partners and users with claims against an ad-funded AI platform, the notice now shows what Disney asks the court to confirm, and how little can be contested once the auction is over.