Sekunjalo and the In Duplum Rule: Why Capitalisation Strategies Are Now at Risk

April 15 , 2026

By Leretha Legal (Pty) Ltd

The Supreme Court of Appeal has delivered a commercially significant judgment in SACTWU Investments Group (Pty) Ltd v Sekunjalo Independent Media (Pty) Ltd and Another [2026] ZASCA 39, fundamentally reshaping how the in duplum rule applies to interest in loan agreements.

For years, lenders relied on a distinction between arrear interest, which is capped, and accrued or capitalised interest, which was often treated as falling outside that cap until default. This decision narrows that distinction in a way that directly affects loan structuring, pricing, and enforcement.

What the court decided

The dispute arose from a loan agreement that allowed interest to be capitalised if the borrower could not pay on the due date. Over time, the capitalised interest exceeded the original loan amount. The lender argued that this interest was not “arrear” because the agreement permitted deferral and capitalisation.

The SCA rejected that argument.

It held that interest which remains unpaid because the debtor cannot afford to pay is, in substance, arrear interest, regardless of how the agreement describes it. The court confirmed that capitalising interest does not change its legal character and cautioned against structures that produce “boundless interest” in conflict with public policy.

Why this matters

This is not a technical clarification. It carries immediate commercial consequences.

First, capitalisation clauses can no longer be relied on as a mechanism to grow a debt beyond the in duplum cap. If interest remains unpaid due to financial distress, it is likely to be treated as arrear interest and will cease to accrue once it equals the outstanding capital.

Second, lenders may recover less interest than their financial models anticipate. Many lending structures rely on compounding during periods of non-payment. That approach is now legally constrained.

Third, the timing of enforcement becomes critical. Delaying enforcement in the expectation that interest will continue to capitalise may result in the cap being reached sooner, reducing recoverable value.

What remains uncertain

Although the case dealt specifically with capitalisation triggered by an inability to pay, the court’s reasoning is broad. It raises an important question: will even voluntary or elective capitalisation be treated in the same way?

Until further judicial guidance emerges, the prudent approach is to assume that courts will prioritise the economic effect of an arrangement over its drafting.

What to look out for

Lenders and credit providers should immediately review:

Clauses allowing automatic capitalisation of unpaid interest
Deferral mechanisms linked to cash flow constraints
Long-term facilities that depend on compounding for returns

Borrowers, in turn, should be alert to the possibility that their interest exposure may be capped earlier than expected, particularly in distressed scenarios.

Until further judicial guidance emerges, the prudent approach is to assume that courts will prioritise the economic effect of an arrangement over its drafting.

Bottom line

The SCA has made its position clear: form will not override substance.

If interest accrues because a debtor cannot pay, it will likely fall within the in duplum cap.

The practical takeaway is simple. You cannot contract around the in duplum rule by calling arrear interest something else.

Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. The views expressed are the author’s own and should not be relied upon as a substitute for professional judgment. Practitioners should exercise their own independent judgment and comply with applicable laws, ethical rules, and professional standards when using AI tools in legal practice.