This paper is concerned with the distributed line interactive operation of 4-leg inverters. Generally, a 3-leg inverter is used as an inverter interface in distributed systems or microgrids. However 3-leg inverters are incapable in effectively handling the unbalance and nonlinearity in the loads. The 4-leg inverters, on the other hand, can control zero sequence currents and give effective DC link utilization. This feature is utilized here to improve the emergency operation of line interactive system. In case of failure of main power supply, that is in emergency operation, 4-leg inverters can maintain balanced and sinusoidal voltages even if the load is unbalanced and nonlinear. Instead of a dedicated compensator designed for handling load unbalance or nonlinearity, the system is inherently made capable of handling such loads. For line interactive operation the transitions between normal and emergency mode are taken care of by frequency restoration scheme. This allows seamless transitions without any change in control algorithm.