<PAGE>   1
                                                                    Exhibit 99.4

                             SUBORDINATION AGREEMENT

      The He-Ro Group, Inc., a New York corporation having offices located at
530 Seventh Avenue, New York, New York (hereinafter referred to as "the
Company"), is indebted to each undersigned creditor (each hereinafter referred
to as "the Creditor" and, collectively, the "Creditors") in the following
amounts evidenced as follows:

                  The following Amended and Restated Subordinated Notes of even
            date herewith, as hereafter further amended, supplemented or
            restated (subject to the last paragraph hereof): (a) the Amended and
            Restated Subordinated Note made by the Company in favor of Hong J.
            Han in the original principal amount of $4,269,000 and the Amended
            and Restated Subordinated Note made by the Company in favor of Della
            Rounick in the original principal amount of $1,257,676 which Notes
            are pari passu to each other in terms of priority of payment and are
            guarantied on a subordinated basis by The He-Ro Group, Ltd. and all
            of its subsidiaries (collectively, the "Subordinated Indebtedness").

      The Company has requested Heller to extend financial accommodations to the
Company and certain of its affiliates pursuant to the Factoring and Revolving
Inventory Loan and Security Agreement among Heller, the Company, HRNL Inc. Nah
Nah Collection, Inc., N.N.C.S. LLC, NNCS-NJ LLC, The He-Ro Group, Ltd., H.R.I.
Inc., European Collections Of Reading Station, Inc., European Collections Of
Harriman, Inc., European Collections of Gilroy, Inc., European Collections of
Chattanooga, Inc., European Collections of Silverthorne, Inc., European
Collections of Queenstown, Inc., European Collections of Williamsburg, Inc. and
European Collections Outlet, Inc. (as amended, modified and supplemented, from
time to time, the "Factoring Agreement"), and Heller is unwilling to do so
unless the Company and each Creditor shall join in this Subordination Agreement
pursuant to which each Creditor shall subordinate, to the extent and in the
manner hereinafter set forth, the Subordinated Indebtedness owing by the Company
to such Creditor, to all indebtedness, now existing or hereafter arising, of the
Company and each other Loan Party to and as defined under the Factoring
Agreement (the "Loan Parties") to Heller.

      Accordingly, in order to induce Heller to enter into the Factoring
Agreement, and in consideration of Heller's entering in to the Factoring
Agreement, each Creditor and the Company warrant to and covenant with Heller as
follows:

1.    Each Creditor agrees to and does hereby subordinate all of the
      Subordinated Indebtedness, together with all collateral, security and
      evidence, if any, of such Subordinated Indebtedness for the payment of any
      such Subordinated Indebtedness, to any and all debts, demands, claims,
      liabilities or causes of action for which the Company may now or at any
      time hereafter in any way be liable to Heller.
<PAGE>   2

2.    The Company and each Creditor agree that until all indebtedness owing by
      the Company, and each other Loan Party to Heller has been paid in full,
      the Company shall not make, directly or indirectly, any payment on account
      of principal or interest of any such Subordinated Indebtedness or transfer
      any evidence of such Subordinated Indebtedness or any collateral therefor,
      and the Creditor will not accept payment of or assert or seek to enforce
      against the Company any Subordinated Indebtedness or any collateral or
      security relating thereto, unless and until Heller shall have been paid in
      full for all indebtedness, obligations and liabilities or causes of action
      now or hereafter owing to Heller by the Company and each other Loan Party;
      provided, however, so long as (a) the undersigned have not received notice
      from Heller of Heller's declaration of an Event of Default (as defined in
      the Factoring Agreement) under the Factoring Agreement and (b) after
      giving effect to any such payment outstanding Client Advances (as defined
      under the Factoring Agreement) shall not exceed Advance Availability (as
      defined in the Factoring Agreement) (without giving effect to the
      Supplemental Amount), then each Creditor may receive and the Company may
      pay regular monthly installments of interest on the Subordinated
      Indebtedness as in effect on the date hereof. To the extent interest is
      not permitted to be paid in accordance with the terms hereof, such
      interest is permitted to accrue during such non-payment period. So long as
      an Event (as herewith defined) shall not have occurred, nothing contained
      in this Section 2 shall be deemed to prohibit conversion of the
      Subordinated Debt to capital stock of the Company (the "Converted Capital
      Stock") so long as such Creditor grants to Heller a first priority
      perfected security interest in the Converted Capital Stock and executes
      all such documentation as shall be required by Heller to evidence such
      pledge. For the purposes of this Section 2, the term "Event" shall mean
      any insolvency or bankruptcy proceedings relative to the Company or its
      property, or any receivership, liquidation, reorganization or other
      similar proceeding in connection therewith, or, in the event of any
      proceedings for voluntary liquidation, dissolution or other winding up of
      the Company or distribution or marshalling of its assets or any
      composition with creditors of the Company, whether or not involving
      insolvency or bankruptcy, or if the Company shall cease its operations,
      call a meeting of its creditors or no longer do business as a going
      concern.

3.    Each Creditor hereby assigns, transfers and sets over to Heller all of the
      Subordinated Indebtedness, whether evidenced by negotiable or
      nonnegotiable instruments, debentures, bonds, securities or other
      writings, book entries or otherwise, together with any collateral
      therefor. The Company and each Creditor shall make appropriate notations
      in their books to show the subordinated character of all such Subordinated
      Indebtedness which may now or hereafter be carried on open account.

4.    At any meeting of creditors of the Company or in the event of any
      proceedings, voluntary or involuntary, for the distribution, division or
      application of all or part of the assets of the Company or the proceeds
      thereof, whether such proceedings be for the liquidation, dissolution or
      winding up of the Company or its business, receivership, insolvency or
      bankruptcy or reorganization (regardless of whether required under any
      bankruptcy or insolvency law or any law relating to the relief of
      debtors), readjustment of indebtedness, reorganization, arrangement,
      composition or otherwise, if all of the indebtedness owing to Heller has
      not been paid in full at the


                                      -2-
<PAGE>   3

      time of any such meeting or proceeding, Heller is hereby irrevocably
      authorized at any such meeting or in any such proceeding:

            (a) To enforce claims comprising any such Subordinated Indebtedness
      either in its own name or the name of any Creditor, by proof of debt,
      proof of claim, suit or otherwise;

            (b) To collect any assets of the Company distributed, divided or
      applied by way of dividend or payment or any securities issued, on account
      of any of the Subordinated Indebtedness and apply the same, or the
      proceeds of any realization upon the same, that Heller in its discretion
      elects to effect, to any indebtedness of the Company to Heller until all
      such indebtedness of the Company to Heller shall have been paid in full
      rendering any surplus to the applicable Creditor;

            (c) To vote claims comprising any of the Subordinated Indebtedness
      to accept or reject any plan for partial or complete liquidation,
      reorganization, arrangement or composition of the Company or for any
      extension of payment of the Subordinated Indebtedness; and

            (d) To take generally any action in connection with any such meeting
      or proceeding which any Creditor might otherwise be entitled to take.

5.    Each Creditor represents and warrants to Heller that such Creditor has not
      assigned or transferred any of the Subordinated Indebtedness or any
      interest therein or any collateral or security relating thereto to any
      other person, and such Creditor covenants that such Creditor shall make no
      assignment or transfer thereof other than to Heller or to the other
      Creditor (any such assignment or transfer shall remain subject to the
      terms and provisions of this Agreement). Each Creditor further warrants
      that no part of the Subordinated Indebtedness is evidenced by any
      instrument, security or other writing which has not previously been or is
      not concurrently being deposited with Heller or appropriately legended to
      reflect this Subordination Agreement.

6.    Should any payment on account of or any collateral for any part of the
      Subordinated Indebtedness subordinated hereby be received by any Creditor
      in violation of this Agreement such payment or collateral shall be
      delivered forthwith to Heller for application to the indebtedness owing by
      the Company to Heller, in the form received by such Creditor except for
      the addition of any endorsement or assignment necessary to effect the
      transfer thereof to Heller. Heller is irrevocably authorized to supply any
      required endorsement or assignment which may have been omitted.

7.    Each Creditor and the Company waive notice of acceptance hereof by Heller,
      notice of the creation of any indebtedness or liability of the Company to
      Heller, any extension granted or other action taken by Heller in reliance
      hereon, the giving or extension of credit by Heller to the Company, the
      taking or releasing of security or other obligors by Heller for the
      payment of any indebtedness or liability of the Company to Heller. Each
      Creditor and the Company also waive presentment, demand, protest, notice
      of protest or default and any and all other notices to which


                                      -3-
<PAGE>   4

      such Creditor might otherwise be entitled except as expressly provided for
      herein. The Company and each Creditor agree to execute and deliver to
      Heller such additional documents and take such further action as Heller
      may hereafter reasonably require in order to effect the provisions and
      intent of this Subordination Agreement.

8.    This Subordination Agreement is intended to take effect as a sealed
      instrument and shall be continuing, irrevocable and binding on the Company
      and each Creditor, jointly and severally, and their respective heirs,
      executors, representatives, successors and assigns, and shall inure to the
      benefit of Heller and its successors and assigns. This Subordination
      Agreement shall be construed in accordance with the laws of the State of
      New York.

9.    Any notice to any party hereto shall be delivered to such party, as
      applicable, as follows: if to (a) Hong Han at 12 Timberline Drive, Alpine,
      New Jersey 07620, (b) Della Rounick at 15 West 53rd Street, New York, New
      York 10019, and (e) Heller at 150 East 42nd Street, New York, New York
      10017, Attention: The He-Ro Group Account Executive, in each case by a
      nationally recognized overnight delivery service, by hand or by certified
      mail return receipt requested.

      So long as the Factoring Agreement remains in effect, neither the Company
      nor any Creditor shall enter into any amendment to or modification of any
      agreements, documents or instruments evidencing the Subordinated
      Indebtedness which affect the principal amount, interest rate, payment
      terms or any other material covenant or agreement of the Company
      thereunder or in respect thereof without the prior written consent of
      Heller.

                       [SIGNATURE LINES ON FOLLOWING PAGE]


                                      -4-
<PAGE>   5

            IN WITNESS WHEREOF, the parties hereto have caused this
Subordination Agreement to be duly executed this 24th day of December, 1997.

                                    /s/ Vasiliki Della Pasvantidou Rounick 
                                    --------------------------------------
                                    Vasiliki Della Pasvantidou Rounick

                                    /s/ Hong J. Han
                                    --------------------------------------
                                    Hong J. Han

                                    THE HE-RO GROUP, INC.


                                    By: /s/ Sam Kaplan
                                       -----------------------------------
                                        Name:
                                        Title: Vice President

                                    HELLER FINANCIAL INC.


                                    By: /s/ Michael Raynor
                                       ----------------------------
                                        Name:
                                        Title:


                                      -5-
<PAGE>   6

STATE OF NEW YORK       )
                        ) ss:
COUNTY OF NEW YORK      )

            On this 24th day of December, 1997, before me personally came Hong
J. Han to me known, who being by me duly sworn, did depose and say that he is
the individual described in and who executed the foregoing instrument, and
acknowledges that he executed the same.

                                    /s/ Judith D. Mitchell 
                                    ----------------------------------
                                    Notary Public

STATE OF NEW YORK       )
                        ) ss:
COUNTY OF NEW YORK      )

            On the 17th day of December, 1997, before me personally came Della
Rounick, to me known, who being by me duly sworn, did depose and say that she is
the individual described in and which executed the foregoing instrument, and
acknowledges that she executed the same.

                                    /s/ Stuart Shorestein
                                    ----------------------------------
                                    Notary Public

STATE OF NEW YORK       )
                        ) ss:
COUNTY OF NEW YORK      )

            On the 24th day of December, 1997, before me personally came Sam
Kaplan, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of the He-Ro Group, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.

                                    /s/ Judith D. Mitchell
                                    ----------------------------------
                                    Notary Public
<PAGE>   7

STATE OF NEW YORK       )
                        ) ss:
COUNTY OF NEW YORK      )

            On the 24th day of December, 1997, before me personally came Michael
Raynor, to me known, who being by me duly sworn, did depose and say that he is a
Vice President of Heller Financial, Inc., the corporation described in and which
executed the above instrument; and that he signed his name thereto by like order
of the board of directors of said corporation.

                                    /s/ Judith D. Mitchell
                                    ----------------------------------
                                    Notary Public