Character.AI's asset sale is moving forward after a 30 October hearing in which US Bankruptcy Judge Brendan Shannon indicated he would overrule objections from a coalition of state attorneys general and the US Trustee, Reuters reported. The states had argued that the proposed bidding rules gave Disney an unfair head start.

What we know

In an objection filed on 23 October and described by PPC Land, 31 states and the District of Columbia said the minimum rival bid of $21.7 million was set too high. Because Character.AI keeps $5.5 million of Disney's payment whatever happens, they argued, a lower competing offer could still leave the estate better off. They also attacked Disney's $700,000 break-up fee and asked the court not to bless releases given to Disney and the company's former chief executive.

According to a later company filing summarised by PPC Land, the court said it would overrule the objections once certain revisions were made. The changes were limited: a clause treating creditors' silence as consent was dropped, and the process for naming extra stalking horses was streamlined. The $21.7 million floor, the break-up fee and Disney's 17 December closing deadline were unchanged. Florida said it continued to object.

Why it matters

The ruling shows the limits of state leverage at the procedural stage. Attorneys general can force disclosure and minor amendments, but bankruptcy courts tend to protect the speed and certainty that stalking-horse deals offer. The bigger fights over releases and consumer protections have been pushed to the sale hearing.

For anyone thinking of bidding on companion assets, the economics now look settled and tilted towards Disney. For regulators, the lesson is that child-safety and privacy conditions may need to be pressed earlier, or through separate enforcement, if they are to bind a buyer.

What to watch

The sale hearing, where the states are expected to challenge the releases and push for user-data protections.

Sources

Written by the AI Companion Wire newsroom from public reporting, credited above. Image via Reuters.