STOCKHOLM—Saab Automobile AB said it would appeal a Swedish court's refusal to grant it protection from creditors, a move that clears the way for labor unions representing unpaid workers to petition for bankruptcy and reclaim unpaid wages.

The troubled car maker had sought protection in a last ditch attempt to buy time to secure funding, after having struggled with its finances for months and halted production in April, according to The Wall Street Journal.

In its ruling, Vanersborg district court said on Thursday that Saab's application didn't fulfill the legal requirements for protection from its creditors, and it questioned the viability of deals the company had signed with two Chinese companies to obtain financing. Saab's application, which was submitted Wednesday, is similar to a Chapter 11 filing in the U.S.

Saab said it was disappointed in the ruling and plans to appeal. The appeal process should take a week, said Victor Muller, Saab's chairman and the chief executive of Saab owner, Netherlands-based Swedish Automobile NV.

Saab in recent months had tried to resolve its long-term funding needs by signing agreements with two Chinese companies to help manufacture and sell cars in China. The deals have been pending approval by regulators in China and Sweden, leaving the company short of cash. It sought bankruptcy protection to give more time for regulators.

But the court said it is unclear if and when the Chinese deals would be approved. It also questioned the car maker's ability to solve its liquidity crisis and continue operations. The lengthy production shutdown had led to a loss of goodwill and caused damage to the Saab brand, the court said.

"It's a tough decision to make, but history shows that where one company disappears, others will sprout eventually," Chief District Court Judge Gunnar Krantz said.

Darko Davidovic, a lawyer for blue-collar labor union IF Metall, said a bankruptcy filing by the company would be better than a bankruptcy petition by IF Metall as the union petition would require negotiations with the company, potentially delaying a settlement.

If Saab had been granted protection from creditors, it would have been able to use the Swedish state's salary guarantee to pay wages and would have had more time to sort out its finances.

However, the union will likely proceed with a petition for a bankruptcy, as they can only seek state unemployment benefits if they petition for the bankruptcy of their employer.

"We have no choice," Mr. Davidovic said. "We can't play around with our members' wages."

The unions have called meetings to consider a bankruptcy petition. If agreed, a petition could be filed to the Vanersborg district court.

Another labor union, the Swedish Association of Graduate Engineers, said it regretted the ruling. "A petition for bankruptcy is the last thing we want to do," said the union's head of collective bargaining, Camilla Frankelius.

Supplier organization FKG said the decision was disappointing. Its members get nothing if Saab Automobile is declared bankrupt, while a reorganization of the car company would give its members something. "It's a sad decision for automotive Sweden," said FKG Chief Executive Fredrik Sidahl.

Saab mechanic Leo Qvist, 61 years old, has worked for Saab for 40 years and was in the company gym when he heard the news. "I was very disappointed. I thought [the judges would] say 'yes,'" he said outside the company's headquarters. "I still think there's value in Saab in its many skilled workers."

In its ruling, the court also made a point of noting that a previous Saab Automobile reorganization overseen by a court two years ago had failed.

"It was, of course, significant that there has already been a substantial reorganization a few years ago that was not successful," District Court Judge Patrick Baerselman said.

Saab Automobile got protection from its creditors in February 2009 after its then-parent General Motors Co. said it would cut ties with the company following two decades of losses.

In its application, Saab said it would have to consider filing for bankruptcy if it wasn't granted protection from its creditors.

On Thursday, Mr. Muller said the ruling leaves Saab "completely unprotected," as all stakeholders could request the company be put into bankruptcy. He appealed to all stakeholders to "hold their horses."

"Much to our surprise and definitely to our disappointment, the court decided to rule against the application for bankruptcy. Now we move onto plan C, which is to appeal," Mr. Muller said.

He added that if the appeal failed, he will move onto plan D, though he didn't specify what it was.