Mendco is a wireless solutions provider that facilitates wireless Internet access through small remote devices that connect to portable computers. During the past several years, Mendco was lavished with an abundance of equity financial capital from a variety of venture investors. Although initial adoption rates for this new service were far below expectations, most were confident that expanding the service area and thus increasing the service's availability to new and existing users would result in rapid increases in the volume of new subscribers. Helping to fund this massive expansion, Mendco arranged tremendous amounts of debt financing, much of which was secured by the expansion assets themselves (i.e. wireless towers and transmission facilities). However, recently it became clear that Mendco would not be profitable and would only continue to burn large amounts of cash if it continued to operate. Administrative and legal fees are $370,000, and the bank underwriting the notes payable have the "right of offset" on cash deposits, the amount indicated in the cash account on the balance sheet.

1. Define the problem in the case
2. Who are considered to be the priority claimants in this liquidation? Explain
3. Who are considered to be general creditors? Explain.