Despite agreeing to pay R55 million for a controlling stake in the Midway Two group of companies, President Jacob Zuma’s brother Michael and his two business partners could not make any operational or management decisions in the company without the consent of its previous owner.

A contract signed by Michael Zuma, ANC MP Richard Mdakane and businessman Prince Brayce Mthimkhulu for a 55% stake shows that the three could not declare dividends, open or close branches, pay any allowances, make any procurement or supply decisions or appoint managerial staff without “a positive vote” from the company’s former owner, Daan Scholtz.

Scholtz has emphatically denied that any fronting took place at the company, amid allegations from Mthimkhulu that the three were being used as window dressing.

Since the fallout over Mthimkhulu’s fronting allegations he has left the company, while Zuma and Mdakane have remained on.

The contract, which was signed in June last year, gave Scholtz considerable control over the company, even after he received a R20 million exit package agreed to in the contract for “recognition of 25 years of service”.

Scholtz could not be reached for comment.

The three new majority owners were prohibited from declaring any dividends before Scholtz was paid the R20m.

In November, Scholtz sought to cancel the deal as a result of a breach of one of the clauses which lists 19 different things the new owners could not do without Scholtz’s consent.

In addition to the conditions already mentioned, the three were prohibited from placing investments, paying bonuses, making new board appointments or incurring local or international travel costs, or embarking on new business ventures.

Despite previous denials that fronting had ever been a problem, Mdakane conceded that the contract “was the main reason why we couldn’t continue very well”.

It had since been amended, he said.

“We’ve done a complete overhaul. Oom Daan has retired completely after coming to Cape Town where we met,” Mdakane said.

Mthimkhulu said the contract was the reason he left the company.

“This deal was a nonsense deal. We signed it because we had a lot of trust, not knowing that we were set for failure,” he said.

When contacted in February, Zuma was alarmed to hear that he was involved in the purchase of a multimillion rand company, having thought he was only an employee.

Last week he said he was fully involved in the running of the business.

The Sunday Independent had previously reported that the Hawks were investigating the Midway Group for alleged tender irregularities.

Reliable sources said part of the probe focused on whether Scholtz’s former domestic worker, Maria Jeme, was used as a front over several years.

The Midway Two group of companies includes labour brokering firm Midway Two Contractors, Democratic Industrial Services, Midway Two Engineering, Executive Outsourcing and Bambanani Electrical and Cabling.

Documentation seen by The Sunday Independent showed that Jeme had a 42% stake in Contractors, 26% in Executive Outsourcing and 40% in Democratic.

Two months before the company was sold to Zuma, Mdakane and Mthimkhulu, Jeme was offered R350 000 as a settlement for her shares, which she rejected.

Midway Two Contractors was the mainstay of the group, bringing in major contracts for the supply of labour to the City of Cape Town, Transnet and the police.

The Hawks were also investigating whether bribes were paid for the company to win police contracts over a period of 10 years.

Since the Sunday Independent’s exposé in February, the City of Cape Town has asked the company to provide documentation proving Jeme’s role as a director.

The Sunday Independent has seen a May 16 letter from the chief of the Forensic Service Department, Vincent Botto.

Botto requested a “timeline and progression” from Jeme’s appointment date as director, payroll history from October 2007 to date, dividends paid to Jeme from 2007 and dividends paid to at least two other directors.

Botto also requested records from board meetings, changes in directorships and “any documentary information which demonstrates that Jeme was actively involved in the management of the enterprise and exercised control over the enterprise, commensurate with her claimed degree of ownership at the closing date of the tenders.”

Midway Two Contractors provided temporary staff to the municipality from 2005 for contracts totalling more than R110.7m.

Ceo Danny Naicker said the company had “no problem co-operating fully with the investigation”.

Mdakane, the non-executive chairman, said he did not have details on the investigation because “there is a break with the past and what happened before”.

Mdakane said he was looking forward to the conclusion of the investigation, because the controversy had affected the company’s growth.

“We employ 3 000 people and can’t afford to render any of them unemployed. We’ve decided that we must move forward, we must do things correctly. It’s not about individuals. At the end of the day we are employing a large number of people,” he said.

City of Cape Town spokeswoman Kylie Hatton would not comment on the progress of the investigation.

“Any further comment at this stage may prejudice the investigation,” she said.