Character Technologies, the bankrupt operator of Character.ai, today asked the US Bankruptcy Court for the District of Delaware to sign a further revised order setting the rules for the sale of its assets, after the court indicated at an October 30 hearing that it would overrule the objections of a coalition of state attorneys general and the US Trustee. The order filed today keeps Disney Worldwide Services as the lead bidder with its $700,000 break-up fee, but moves the auction from November 23 to December 1 and the sale hearing from November 24 to December 3 and 4. It also drops a paragraph that would have treated a creditor's failure to object as "consent" to the sale.

In Short

Character.ai is bankrupt and is selling what it owns, starting with a $20 million deal that gives Disney a license to its technology. A judge has said the complaints from dozens of states and the government's bankruptcy watchdog about the rules of that sale will be rejected, so Disney keeps its $700,000 fee and anyone who wants to take Disney's place still has to offer at least $21.7 million. The company has now written up the final rules for the judge to sign, with bids due November 24, an auction on December 1 and a two-day hearing to approve the sale starting December 3.

What the certification says

The filing is Docket No. 96 in case 26-11603 (BLS), In re Character Technologies, Inc., before Judge Brendan L. Shannon. It is a certification of counsel, the document a party files when it asks a judge to enter an order without a further hearing. Heather P. Lambert of Wilson Sonsini Goodrich & Rosati signed it as proposed counsel to the company, which runs its own business in Chapter 11 as debtor in possession. Attached are the further revised bidding procedures order (Exhibit A), with the bidding procedures, the sale notice, the contract notice and a form of transition services agreement as its own exhibits, and a comparison against the version filed on October 27 as Docket No. 74 (Exhibit B).

The cover sets out the procedural history. The sale motion was filed on October 13 as Docket No. 15. The court set an objection deadline of October 23 at 4 p.m. Eastern, and the company gave the Office of the United States Trustee for the District of Delaware until October 27 at 5 p.m. Before the deadline, the company received informal comments from the US Trustee and from counsel to Nicole Spense, and formal objections from the coalition of states (Docket No. 66) and the US Trustee (Docket No. 69).

More filings followed. Florida's attorney general and other states filed joinders (Docket Nos. 79 and 81). On October 29, "A.D., a Minor, by and through her guardian ad litem, K.H." filed a statement on the motion (Docket No. 87). The company replied on October 27 (Docket No. 73), and Disney joined that reply (Docket No. 77). On October 29 the coalition also joined the US Trustee's objection (Docket No. 80), and on October 30 the company filed a revised form of the sale notice (Docket No. 90).

By PPC Land's count, the objections now carry the names of 40 states and the District of Columbia: 31 states and DC on the October 23 objection, eight more states on October 28, and Florida.

The hearing

The key sentence is in paragraph 6 of the cover. "As discussed on the record at the Hearing, the Court indicated that it would overrule the Objections and enter the Revised Proposed Bidding Procedures Order subject to certain revisions being made." The company says it made those revisions and circulated them. "Disney and the Objectors indicated they do not object to the form of the Further Revised Proposed Bidding Procedures Order. Counsel to Florida indicated it continues to object."

The company asks the court to enter the order "at its earliest convenience." Until that happens, the dates and terms below are proposed. Once it is entered, paragraph 2 of the order would close the argument: objections to the bidding process "that have not been withdrawn, waived, or settled, and all reservations of rights included therein, are hereby overruled and denied on the merits with prejudice."

The certification does not say which revisions the court asked for. The comparison shows what changed.

A calendar pushed back by about a week

Most of the marked changes are dates. All but two deadlines move later, including the date by which the company can name a second stalking horse bidder alongside Disney.

Event October 27 version Version filed today
Notice of contracts to be assigned November 4 November 4 (unchanged)
Deadline to name an additional stalking horse November 9 November 14
Sale objection deadline November 13, 4 p.m. ET November 18, 4 p.m. ET
Contract objection deadline November 18, 4 p.m. ET November 18, 4 p.m. ET (unchanged)
Objections to an additional stalking horse At a hearing held at least three days after notice November 18, 9 p.m. ET
Bid deadline November 20, 5 p.m. ET November 24, noon ET
Qualifying bids and opening bid named November 21 November 25
Company's reply to sale objections November 23, noon ET November 30, 4 p.m. ET
Auction November 23, 10 a.m. ET December 1, 10 a.m. ET
Sale hearing November 24, time left blank December 3 and 4, 9:30 a.m. ET each day

The auction moves eight days and the sale hearing nine, by PPC Land's count. The hearing also grows from one day to two, and the phrase "subject to Court availability" disappears from the order's schedule of dates. Bidders gain four days, less five hours, since the new deadline falls at noon rather than 5 p.m. Thanksgiving falls on November 26, so the bid deadline and the company's review of bids now land in the same week as the holiday. Under the old calendar, the sale hearing would have finished before it.

Four days is far short of what the states asked for. Their October 23 objection, covered when 32 states said Character.ai's sale rules block bids that would beat Disney, sought an extension of the bid deadline by at least 21 days. They also wanted the sale objection deadline moved after the auction, so creditors would know who had won before objecting. That did not happen either. The sale objection deadline still comes before bids are due: six days before, compared with seven under the October 27 calendar.

What did not move

One date stays fixed, and it matters more now. The bid requirements ask competing bidders to commit to close "by no later than December 17, 2026," and Disney may walk away as back-up bidder if a sale has not closed by that date. The comparison marks no change on either line, so the December 17 date was already in the October 27 version. When the states objected on October 23, rivals had to close by November 30 while Disney had until December 17; the procedures now set one date for both.

With the sale hearing moved to December 3 and 4, the time between court approval and the closing deadline shrinks from 23 days to 13 or 14, by PPC Land's count. The back-up mechanism is tighter still. If a winning bidder "fails to close the Sale on or before the date that is two weeks following entry of the Sale Order (or such date as may be extended by the Debtor)," the back-up bid becomes the winning bid. A sale order entered on December 4 would put that two-week mark at December 18, one day after Disney, if it is the back-up bidder, could terminate.

The most consequential deletion is a whole paragraph. The October 27 version said that failure to file a sale objection by the deadline "(a) shall forever bar the assertion, whether at any Sale Hearing or thereafter, of any objection to the Motion, to the entry of the Sale Order, and/or to the consummation and performance of the Sale" and "(b) for purposes of section 363(f)(2) of the Bankruptcy Code, shall be deemed to be 'consent' to the entry of the Sale Order and consummation of the Sale and all transactions related thereto."

That paragraph is gone. Section 363(f) of the Bankruptcy Code allows a sale free and clear of another party's interest only if one of five conditions is met, and one of them, in subsection (f)(2), is that the holder of the interest consents. A deemed-consent clause turns silence into that consent. Without it, silence alone no longer supplies that consent under the order.

What remains is a softer warning. A party that misses the deadline "may be barred from objecting to the Sale and being heard at the Sale Hearing, and this Court may enter the Sale Order without further notice to such party." The sale notice repeats it in capital letters. The certification does not say who asked for the deletion.

The change is limited to sale objections. For contract counterparties, silence still works as before: a counterparty that does not object by November 18 is "deemed to have consented" to the assumption and assignment of its contract, is "forever barred" from objecting later, and is bound by the cure amount the company lists.

A second stalking horse without a hearing

The procedures allow the company to name additional stalking horse bidders for assets other than those Disney is acquiring, which on the company's earlier descriptions include the app, the brand and the user base. The October 27 version, which the company offered in its reply, required a hearing "at the Court's earliest convenience not earlier than three days after service" of a supplement disclosing the new bidder, with objections "due at the hearing."

The new text replaces the hearing with a written deadline. Objections to a new stalking horse "shall be due at 9:00 p.m. on November 18, 2026." If one is filed, "the Debtor shall request that the Court schedule a hearing to consider such objection on an emergency basis." If none is filed, "the designation of the Additional Stalking Horse Purchaser shall be deemed approved without further notice or a hearing."

The window is short. The designation deadline is November 14, a Saturday, and the objection deadline is the evening of the following Wednesday, about four days later. The supplement must go to, among others, the US Trustee, any creditors' committee, contract counterparties and "the attorneys general of each of the states." It must name the bidder (and its parent company or sponsor if it is a newly formed entity), the price, any connections to the company, the contracts to be assigned and any proposed bid protections, together with "any initial evidence" for treating those protections as an administrative expense.

What the states did not get

The economic terms the coalition attacked are unchanged in the order the court is now asked to sign.

  • The fee. Disney's break-up fee and expense reimbursement are approved at "$700,000, or 3.5% of the cash purchase price." The obligation carries administrative-expense status, is payable "directly out of proceeds" of a rival transaction, and survives termination of Disney's agreement. Disney does not need to seek relief from the automatic stay to enforce its remedies over the fee, the order says.
  • The floor. A rival bid for the Disney assets must at least equal the value of Disney's agreement, "plus (2) any applicable Break-Up Fee, plus (3) $1,000,000." On Disney's $20 million cash price, that formula gives $21.7 million. The states had asked for a floor that reflected the $5.5 million Disney had already paid and the company keeps whatever happens. The company's reply refused, as reported when Character.ai kept its $21.7m bid floor for Disney rivals despite 32 states.
  • The auction. Bids rise in increments of $500,000, and any successive Disney bid counts the fee toward its total. Disney is a qualifying bidder "without regard to any of the requirements or conditions set forth herein." Rivals must pay cash, post a 10% deposit, show cash on hand or unconditional committed financing, drop all contingencies and accept the assets "as is" and "where is."
  • The staff. If Disney loses, it must let one winning bidder interview and make offers to former Character.ai employees now at Disney, but "Disney may designate up to 20% of such employees as outside the scope of such process." The states had argued in their October 28 joinder that Disney keeps Character.ai's ex-CEO and staff even if outbid.
  • The deposit. Disney's "$2,000,000 fully refundable deposit" is returned if it does not win. The other $5.5 million of its $7.5 million advance stays with the company, according to the company's earlier filings.

The order is also careful about what it does not decide. "Notwithstanding anything to the contrary herein, this Order does not approve the full terms of the Stalking Horse Transaction Agreement or permit the Debtor to consummate the transactions set forth therein other than the Bidding Protections." The release of Disney and its hired staff, the exculpation for transition services and the injunction against successor-liability suits belong to Disney's proposed sale order. The sale notice now lists them, and they will be argued at the December hearing, with objections due November 18.

The later hearing date stretches one of those terms. The company's release of Disney 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." The agreements with Disney were signed on September 18. With entry of the sale order now no earlier than December 3, the release would cover at least 76 days after that date, up from 67 under the November 24 hearing date, and 90 if the deal closes on December 17, by PPC Land's count.

Two provisions do reflect the states' presence. Any adjournment of the sale hearing or other dates requires consultation with "the counsel for the NAAG Client States," along with any creditors' committee and the winning bidder. And the fiduciary-out paragraph says that nothing in the order "shall operate to limit the Debtor's communications with governmental units, the U.S. Trustee, or any official committee of unsecured creditors."

On privacy, the order says nothing. It does not mention a consumer privacy ombudsman, although 39 states and DC told the court on October 29 that Character.ai user data needs a privacy ombudsman to the extent any personal or "sensitive" information is sold. The only privacy language is a footnote in the sale notice: "The Disney Target Assets exclude PII (as defined by section 101(41A) of the Bankruptcy Code)."

How users and creditors will be told

Distribution rules sit in paragraphs 17 and 18 of the order. Within two business days of entry, the company must mail the sale notice to a list that includes the US Trustee, Disney's counsel, anyone known to hold a lien on or claim to the assets, anyone known to have shown interest in buying them in the year before the October 12 filing, "the Office of the Attorney General in each state in which the Debtor has operated," the Federal Trade Commission, the Antitrust Division of the Department of Justice, every contract counterparty, all known creditors and equity holders, and "counsel to Nicole Spense."

For everyone else, the order relies on publication. The notice is to run in USA Today within seven business days of entry and to be posted on the case website run by Stretto, on the company's blog and on its "online community webpages (which are the online locations through which the Debtor regularly communicates with the public)."

Users get a specific clause. "The Debtor may serve the Transaction Notice to users of its platform who do not hold Known Claims ... through (1) posting such notice on its platform and website promptly following entry of this Order, and/or (2) by electronic mail as soon as reasonably practical," and that method "shall be deemed adequate and proper." Known Claims are claims the company recorded and reserved for on its balance sheet before the filing, or written threatened claims and filed complaints it had received by then.

The states had asked for a plain-language notice to personal-injury claimants and a posting on the platform itself. The order permits the platform posting; it does not require it, and the word "and/or" leaves email as an alternative.

Two new names

The certification brings two parties into the record that PPC Land has not reported before.

The first is Nicole Spense, whose counsel sent informal comments before the objection deadline. The order gives that person a dedicated paragraph: nothing in it "shall prohibit or restrict Nicole Spence from (a) objecting to the Sale, including any Additional Stalking Horse Agreement, Alternative Agreement, or Winning Bid other than the Stalking Horse Transaction Agreement, ... (b) seeking relief from the automatic stay, (c) filing or amending any proof of claim against the Debtor, or (d) otherwise being heard." The rights of the company and of any buyer, "including Disney," to respond "are likewise preserved." The filing spells the surname "Spense" in the certification and the mailing list and "Spence" in that paragraph. It does not describe the claim.

The second is A.D., a minor, whose statement was filed through a guardian ad litem identified only as K.H. The certification counts A.D. among the objectors that do not object to the form of the order. The statement itself is not part of the filing.

What a winning rival would get from Disney

Exhibit 4 is the form of transition services agreement Disney would sign with one winning bidder other than itself. The comparison filed today carries no marked text for it, nor for the sale notice or the contract notice, so its terms are those already on file. Several of them have not been reported before.

The service is narrow. Schedule A describes it as "Transition services to support the Purchased Assets," delivered by "Personnel needed to support the Purchased Assets," for no longer than the lesser of 60 days after the agreement takes effect and 75 days after the auction ends. With a December 1 auction, that puts the outer limit at February 14, 2027, by PPC Land's count. What the "Purchased Assets" are is left blank, with a note that they are "To be negotiated between Disney and [Winning Bidder]."

The price is cost plus a margin. The winning bidder pays Disney's "fully allocated cost" of each service, including salaries, benefits, overhead, offices and equipment, "plus a ten percent (10%) margin," and reimburses third-party costs. Disney may issue a cash call for expected third-party costs, payable within five days.

The staff commitment is partial. No person providing services is "required to dedicate more than twenty percent (20%) of their hours" to the work, and services are to be performed "solely using Service Recipient Systems." Schedule B excludes 12 corporate functions, among them "legal and compliance advice," human resources, "communications and marketing," public policy, government relations and "any disaster recovery, crisis management and/or business continuity arrangements."

The legal terms favor Disney. The services are provided "AS IS" and "AS AN ACCOMMODATION," with no Disney liability except for gross negligence, willful misconduct, actual fraud, bad faith or breach of confidentiality. The agreement states that Disney performs the services "in order to facilitate the release of claims set forth in Article VIII." That release runs from August 1, 2026 through the agreement's effective date and covers the bankruptcy case, the hiring of the company's former employees "and any related intellectual property use, including with respect to the Licensed IP." A data processing addendum requires Disney to report any security incident involving personal data within 48 hours. Disney's named contact for the services is Justin Radell, Assistant General Counsel of The Walt Disney Company.

Loose ends

The draft is not entirely clean. Paragraph 30 of the order still refers to "this paragraph 31," and paragraph 12 sends objections about a rival winner's ability to perform contracts to "paragraph 25 below," which after the renumbering is the company's reply deadline. The contract notice still dates Disney's agreement "October [●], 2026," leaves the judge and courtroom blank and keeps the phrase "subject to the Bankruptcy Court's availability" that the order's own schedule dropped. The certification says the comparison includes the revised sale notice, but the comparison carries no marked text for it. Paragraph 29 of the order lets the company fill in missing dates, "correct any typographical errors" and make "other non-material changes" before the notices are mailed.

Why this matters for the marketing industry

Character.ai is an advertising-funded consumer AI service. Advertising brought in about $2.5 million in August 2026, close to half of monthly revenue, while the company lost $8m a month despite $2.5m in monthly ad sales. When it filed, Character.ai faced a wind-down as Disney's $20m bid licensed its IP, not the app, and that petition coverage counted 44 seller lines in the app's ads.txt file, including a direct Google account.

The revised order sets the dates by which that remaining business either finds a buyer or does not. A buyer for the app, the brand and the user base now has until November 24 to bid, or until November 14 to be named a stalking horse in its own right. For vendors and partners holding contracts with the company, November 4 is the date the company must say which contracts it may assign and at what cure amount, and November 18 is the last day to object. Silence on a contract still counts as consent.

The deal structure is also one the industry recognizes: a large company licenses a startup's technology and hires most of its team, a pattern known as an acqui-hire. Before the filing, Character.ai lost 66 of its 86 staff to Disney, and Disney paid $20m for Character.ai's IP and $180m for its staff. The court's indication on October 30 means the auction rules built around that arrangement survive the states' challenge. Whether Disney also gets the releases and findings it wants is a question for December 3.

Timeline

Summary

Who: Character Technologies, Inc., operator of Character.ai, through Wilson Sonsini Goodrich & Rosati, with Disney Worldwide Services, Inc. as stalking horse. The objectors include a coalition that by PPC Land's count now numbers 40 states and the District of Columbia, the US Trustee, counsel to Nicole Spense and A.D., a minor. Judge Brendan L. Shannon presides.

What: A certification of counsel (Docket No. 96) filing a further revised bidding procedures order after the court indicated on October 30 that it would overrule the objections. The order keeps the $700,000 break-up fee and the $21.7 million minimum overbid, moves the bid deadline to November 24, the auction to December 1 and the sale hearing to December 3 and 4, deletes a clause treating a missed objection as consent under section 363(f)(2), and lets an additional stalking horse be approved without a hearing if no one objects by November 18. Florida's counsel continues to object.

When: Filed today, November 3, 2026, four days after the October 30 hearing. The order takes effect once the court signs it.

Where: The US Bankruptcy Court for the District of Delaware, case 26-11603 (BLS), in Wilmington.

Why: The bidding procedures decide how hard it is to outbid Disney and how long creditors have to object. For advertisers, ad tech partners and vendors with contracts or claims against an ad-funded AI platform, the new calendar sets the November 18 deadline for objections and the dates by which the app and its user base either find a buyer or are wound down.