Each time you file a motion or a brief, the other side has to review that brief and file a counter-motion or brief. And research has to go into those things and you might spend days trying to come up with the information being requested.
Every request you make from the other side, causes the other side more work and thus more expense.
Imagine I asked you to find a receipt for every restaurant you've eaten at in the last year, along with a list of who was there and what was discussed. How much work is that for you? Would answering that question be a significant amount of work?
It sounds like the OP got a second-hand storytelling of what happened, and the original storyteller didn't know the exact details or made things up. It doesn't make sense for the lawyer to not to suggest settling especially if the company is going to go under.
If I'm suing you and I file a motion for summary judgement in my favor, do you need to respond to it? How much is your attorney going to be charging for the time required for that response?
Now imagine that I'm filing multiple motions per week some of which may require a fair amount of time to respond to, so you're getting billed for 10-40 hours of attorney time per week. How long can you sustain that burn rate?
This ties into SLAPP (Strategic Lawsuit Against Public Participation, aka "I may not be able to win my suit, but I can make you spend hundreds of thousands of dollars to defend against it anyway") and the saying "You can beat the rap, but you can't beat the ride" ("we may not be able to convict you, but we can drag a court case out for years and ruin your life").
I genuinely do not understand, as each party is responsible for its own costs