Not true. Jail will usually stop you from flying an aircraft.
It would appear that Hempel was in contravention of the Civil Aviation Act 20AB Flying Aircraft without a Licence and in particular Part 1 that states:
"A person must not perform any duty that is essential to the operation of an Australian aircraft during flight time unless:
"(a) the person holds a civil aviation endorsement that is in force and authorises that person to perform that duty"
<snip>
Penalty: Imprisonment for 2 years.
It appears that Hempel had a PPL but did not have a CPL and at the time of the accident was conducting a flight that required a CPL. Hempel was (apparently) aware of his disqualifying condition, and so his actions would be a deliberate breach. Further, CAA 20A (1) and (2) refer to "reckless operation" and it could be proven that to carry a paying passenger knowing of his suspended CPL
AND a disqualifying medical condition would meet that description.
The real issue here is what CASA knew about Hempel, and what they did or didn't do about it. Being the safety regulator, they have a responsibility to enforce all regulations diligently and impartially, and Hempel being a larger than life character would not have escaped their notice.
A good lawyer would have CASA squarely in the frame for negligence in allowing Hempel to continue to operate, which is why CASA has their representation at the inquest.