David Parker will be reinstated to the Cabinet next week after a Companies Office inquiry emphatically cleared him of filing false returns - but he is unlikely to regain his role as Attorney-General.

A smiling Mr Parker, tipped as a rising star within Labour, said: "Now I feel vindicated. I feel pretty good."

An opinion from Crown solicitors Meredith Connell concluded no case "whatsoever" for a prosecution existed, not even at prima facie level.

Mr Parker has been effectively saved by a one-paragraph letter, dated August 1999, found among official records after Investigate magazine raised questions over returns for his company Queens Park Mews.

The Companies Office inquiry uncovered evidence showing that Mr Parker did not need the consent of former Dunedin business partner Russell Hyslop to waive an annual audit of a company in which they had been joint shareholders. The law requires that an annual audit may be waived only if all shareholders agree.

Investigate magazine reported that Mr Parker's company returns claimed there was unanimous agreement for a waiver yet Mr Hyslop had not been consulted. Mr Parker's declarations were therefore false, his critics argued.

But the compelling evidence uncovered in the Companies Office inquiry was in the form of a one-paragraph letter to Mr Parker from the official assignee, who took control of Mr Hyslop's affairs when he was declared bankrupt in 1997.

"Please note that the Official Assignee waives the requirement to seek confirmation on a yearly basis that a unanimous resolution was achieved in respect of no auditor being required for the above company."

Even Mr Parker had forgotten it existed, as was evident by his comments at the time of his resignation as Attorney-General that he felt "ashamed" and that he had had a sense of "disquiet" when he had signed the company declaration.

Such was his contrition over what he called "a mistake" that within a day of the allegations being made he had resigned all his portfolios.

Yesterday Prime Minister Helen Clark acknowledged Mr Parker had effectively pleaded guilty to something of which he was innocent.

Mr Parker says that while he had forgotten the existence of the letter, it was consistent with his actions in not seeking the official assignee's consent on an annual basis to shareholder resolutions that no auditor be appointed for the next year.

Helen Clark said she would recommend to the caucus next week that Mr Parker be re-elected to the Cabinet. Mr Parker is almost certain to regain the energy and climate change portfolios. A question mark remains over transport and he may forfeit the Attorney-General portfolio because of potential political risk around a complaint about him before the Otago District Law Society by Mr Hyslop.

Mr Hyslop yesterday said while he respected the Crown Law Office's opinion, he did not agree with it. , He said he would release more information about Mr Parker.