Slightly off-topic: Suppose they do go bankrupt, but somehow get some money to fight on (or sell the premises to get enough money to fight on) and win. Can they get compensation for the interruption of business?

I don't know anything about the law of Luxembourg, but in many jurisdictions prosectuing an unmeritorious lawsuit will result in the court ordering you to pay the legal costs of the other party.

Generally that won't fully compensate for the cost and hassle, but it does act as a deterrant for bringing frivolous lawsuits. Unless your legal department has a 9-figure budget I guess.

Aren't there also jurisdictions were the losers pays the winner's costs by default?

Possibly.

In most common law countries costs awards are discretionary (ie - the judge decides), but the general rule is loser pays.

Luckily in most jurisdictions, the party bringing the vexatious proceedings also ends up being the loser. Therefore innocent parties have some protection from being unilaterally screwed by getting caught up in the courts.

Yes, but the innocent parties have to win the suit in order to be awarded anything. If you have someone with a lot of money to sue you in order to annoy you, they usually try not to win, but just to extend the length of the process until your money runs out.

True. I agree that's a problem most modern legal systems are struggling to deal with.

Until they do all I can recommend for innocent parties who find themselves in that situation is to look for a lawyer who will take a quasi-pro bono retainer.

I'm currently representing such a party on a no-win no-fee basis, at the applicable court-mandated scale. If we lose I get nothing, and if we win I get the costs order (at a reduced fee).

It also seems like insurance might (in theory) be a good fit for the incentives encountered.