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Liberty Steel's owner, Sanjeev Gupta, is facing further pressure after two investors began legal action to have parts of his metals group wound up.

Citigroup, acting on behalf of Credit Suisse, began the action in London's insolvency court to recoup unpaid debts from Mr Gupta's GFG Alliance.

GFG has been struggling to finance its UK operations after its main financial backer went bust last month.

The group, which has 5,000 UK workers, plans to "vigorously defend" itself.

It also said it had enough capital across its wider global operations to get through its current crisis in the UK.

It comes a day after the government said it was considering "all options" to keep GFG's biggest subsidiary, Liberty Steel going, including nationalisation.

The government has also rejected a request from Mr Gupta's group for £170m of emergency funding, saying the internal structure of the company was "too opaque".

Liberty runs 12 steel plants in the UK, including at Rotherham, Motherwell and Newport, and employs 3,000 people. A further 2,000 work for GFG in other UK metals businesses.

Citigroup and Credit Suisse both declined to comment on the legal action.

They are understood to be pursuing GFG over debts that were repackaged as bonds by Greensill, formerly its main financial backer. Greensill went into administration earlier in March, sparking the current crisis.

Using a winding up order, the banks would try to show that GFG cannot pay what it owes, in which case its assets should be sold to repay them.

GFG said it was in "constructive" discussions with Greensill's administrators, Grant Thornton, about finding "a consensual and amicable solution" to its financial problems.

A company spokesperson added: "This dispute will take many months to play out in the courts, and in the meantime we are working hard on taking prudent steps to manage our cash and refinance our business.

"Most of GFG Alliance's businesses across its global portfolio are performing well and generating positive cash flow, supported by the operational improvements we've made and strong steel, aluminium and iron ore markets."

The investors are seeking a winding up order against Liberty Commodities, a metals trading company owned by Mr Gupta that reported £4.2bn of revenue in 2020.