The unit, which employs 43 people in Leeds, will be spun off as Interpath Advisory, which KPMG said will become UK’s the largest independent restructuring and turnaround business.
In total, its 22 partners and around 528 staff will move to the new entity, which is backed by private equity firm HIG Europe.
Neither party revealed the size of the transaction.
KPMG said that running the unit is complex as other wings of the business have relationships with almost every large and medium-sized company in the UK.
“With this situation only anticipated to intensify in the future, and with such developments likely limiting the growth of the firm’s restructuring business, the decision to commence a sale process was taken last autumn,” it said in a statement.
Last month Deloitte announced that it would sell its restructuring unit to Teneo.
The companies are getting ahead of an expected Government move which would force them to split their audit arms from the rest of the business to ensure they stay independent.
It comes after collapses at Carillion and other major failures.
KPMG audited the outsourcer and could face a fine for its work after a Financial Reporting Council investigation wraps up in coming months.
The restructuring practice of KPMG has dealt with some high-profile names in recent years, including Thomas Cook’s retail division, Monarch Airlines and Intu.
KPMG’s interim chief executive, Mary O’Connor, said the agreement “will allow us to accelerate investment in our core services, enabling us to take advantage of the significant market opportunities that lie ahead”.
Blair Nimmo, one of the partners at the restructuring practice who will help lead Interpath Advisory, said the deal offers “enormous potential for growth”.
“With over 500 people based across the full breadth of the UK, Interpath Advisory will become the largest independent restructuring and turnaround business in the country,” he said.
“From the strong foundations that we’ve built over the past 50 years, we’re looking forward to building a market-leading international advisory business.”