Lawyers for Sanjeev Gupta, executive chairman of GFG Alliance which owns Liberty, warned that a winding up order could mean the end of steel production at the plant.
They sought an adjournment to allow him to complete an administration process for the company to then be sold, without the need for any government intervention.
But lawyers for the creditors produced a letter to the court from the government offering reassurance that it would step in to take over the steelworks if required.
Creditors owed hundreds of millions of pounds petitioned a court to force the company into liquidation so that Liberty Steel’s assets can be sold to pay the debts owed.
Mr Gupta, whose firm owns a collection of businesses in energy, trading and steel, employing thousands of people in the UK, has faced scrutiny since GFG’s main lender Greensill Capital collapsed in 2021.
Sources close to the steel tycoon have confirmed reports that negotiations with investment giant Blackrock were ongoing to provide new funding to buy the business out of a managed or “pre-pack” administration.
The judge on Tuesday expressed reservations saying there was no certainty as to what would happen to the company after the compulsory liquidation the creditors were demanding.
“What happens to trading after the magic words are uttered?” he asked, referring to the formal granting of a winding up petition. “There is simply too much at stake.”
The case has been adjourned and referred to the High Court.