Franz Madlener pulls off Villa & Hut rescue but still faces bankruptcy fight

Villa & Hut founder Franz Madlener has finally managed to rescue his beloved retail chain from the wreckage of collapsed franchisor Allied Brands, and says he will now concentrate on staving off personal bankruptcy related to debts due to Allied’s woes.

Madlener, who started looking for a white knight for Villa & Hut in July when it became clear Allied’s problems were becoming worse, says he received strong interest from a number of prominent retailers who were keen to recapitalise and grow the chain.

In the end he decided to go with an offer from Melbourne’s Pausewang family. Family head Peter Pausewang is well known for turning around brands such as Eastcoast Fashion (where Madlener was actually a franchisee), Fletcher Jones, Pelaco and starting chains including Provisional Home Living and Smiggle.

“I’ve known Peter for 25 years,” Madlener told SmartCompany.

“They are a retail family. From the point of view of what’s best for the franchisees, it’s this family.”

Importantly, the company set up by the Pausewang family to buy the Villa & Hut assets – a vehicle called V&H International – has also acquired the franchise debtor ledger of Villa & Hut, meaning the franchisees will no longer need to deal with Allied Brands and its liquidators.

“Really it’s totally out of Allied Brands now. That ship has sunk and this is a very, very safe haven for franchises,” Madlener says.

While Madlener says the deal will provide a big boost to the chain’s remaining 21 franchisees, he admits the deal isn’t the best one he could have done from a personal perspective.

He will remain at Villa & Hut as a consultant, but the Pausewang family has appointed its own general manager to the chain.

The reason for that is simple – Madlener still faces the very real prospect of being made personally bankrupt.

In what he admits was a “fatal mistake”, Madlener failed to have a series of personal guarantees he made for Villa & Hut debts unwound when he sold the business to Allied Bands in 2009.

As a result, he is now facing legal action from a number of debtors. This group is led, according to Madlener, by retail landlord Westfield.

“What the Pausewang family has done is only appropriate given the bankruptcy proceedings are sitting there,” he says.

“I never thought in a million years that a company like Allied Brands would ever fall over. I never thought [the guarantees] would be an issue.”

“Now that I have got the franchises into a safe haven I can spend some time fighting off bankruptcy. This deal has consumed me for the best part of 70-80 hours a week since July.”

While the threat of personal bankruptcy would be enough to demoralise many entrepreneurs, Madlener claims he is “ecstatic” at having finalised the buyout deal and is almost brutally realistic about his personal situation.

“Throughout this I kept in mind advice I had been given that the brand is always bigger than you. We’ve kept the brand as the number one focus, it hasn’t been about me.”

“Because let’s face it – all the people who have invested in the brand, and the public and our customers, don’t give a shit about Franz Madlener at the end of the day.”

In terms of what needs to be done to turn around the brand, Madlener says there are three priorities – re-establish the brand in the mind of the consumer, resume product innovation in the business and start giving franchisees one-on-one assistance after what has been a traumatic period.

“All of them have met with various people in the consortium, and they are excited about the prospects.”

The company will also begin the process of examining expansion options both in Australia and overseas.

Despite what promises to be a difficult few months, Madlener says he has been re-energised by getting a deal to save his “beloved” Villa & Hut over the line.

“It’s like running an ultra marathon and coming first. From beginning to end, the whole thing is an exercise is persistence. You just never, ever, ever give up.”

“If we can get the franchisees firing, and I can sort out my bankruptcy, then I can wake up from this entire nightmare.”