The US Supreme Court on Tuesday cleared the way for Chrysler's alliance with Italian automaker Fiat, lifting a block on the government-backed deal that is hoped will save the Detroit firm from liquidation.
The nine-member court reversed a freeze, introduced by Justice Ruth Bader Ginsberg on Monday, which gave Justices time to weigh complaints from Chrysler investors who argued they would be short-changed and their rights' trampled by the Fiat deal.
In a two-page order, the court said disgruntled investors, a group of Indiana pension funds, had not shown "that the circumstances justify" the stay placed on a lower court's approval of the deal.
"The temporary stay entered by Justice Ginsburg on June 8, 2009, is vacated," the court said.
The move paves the way for a Fiat-Chrysler tie up, which executives and the US government hope will allow the bankrupt US carmaker to avoid liquidation.
The ruling is a victory for President Barack Obama, whose administration warned the agreement could have been scuppered by the court-imposed delay, which imperiled a June 15 deal deadline.
The case was also watched closely as a possible precedent for bankruptcy proceedings against General Motors -- Chrysler's much larger Detroit cousin -- which the US government has also bailed out and ushered toward bankruptcy to allow a quick restructuring.
But while Tuesday's decision may have eased the government's immediate trepidation, some aspects of the Court's ruling will keep nerves on edge for GM's bankruptcy.
In considering the request for a stay, the high court explicitly said it was not deciding the merits of the underlying legal issues.
Fiat is now expected to take an initial 20 percent share in Chrysler, in return for sharing technology that can be used to build, smaller, more fuel efficient cars.
The US Justice Department urged the Supreme Court to allow the deal, arguing that because Chrysler is not currently manufacturing cars it continues to lose 100 million dollars during each day of bankruptcy.
In a legal brief the Justice Department brief also argued that Fiat could demand a better deal if the current tentative agreement was nullified.
"If Fiat is released from the obligation to consummate the transaction as currently structured, it will be free to demand additional concessions before concluding a new agreement."
But the group of Indiana pension funds argued the Supreme Court was not under the gun to lift its restriction, pointing to a news article in which Fiat's top executive said he would not walk away from Chrysler.
Sergio Marchionne, chief executive of Fiat, was quoted as saying: "We would never walk away," and added: "We should just be patient and let the system work," according to the brief filed by the pension funds' lawyers.
But a brief filed by Chrysler said that the "hearsay statement reported by the media ... is no guarantee that a new deal could ever be struck."
Earlier Judge Arthur Gonzalez, in an order approving the Chrysler reorganization May 31, had agreed to allow the planned tie-up with Fiat to be completed rapidly.
The judge said he agreed to the accelerated plan in light of arguments from an adviser to the White House auto task force that Chrysler is losing 100 million dollars for each day the plan is delayed.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.
Chrysler's dealership network will be cut by a quarter to 2,400 under the plan approved Tuesday allowing for the immediate elimination of 789 dealers.