There seems to be a lot of confusion among Australians because of the OzDirect case, which was kind of a landmark in fighting fraud. But the issue with OzDirect, the specific regulation they violated that is often mistakenly cited as saying "dropshipping is illegal" simply states that anyone selling items cannot do so if there are "reasonable grounds" to suspect that the seller will not be able to fulfill the order. In the OzDirect case, they certainly knew they weren't going to be able to fulfill the orders; they were bankrupt and had credit lines with wholesalers being frozen or held to review, and were spending incoming order revenue on operating costs. It's a fraudulent representation that happened to have been made by a company that was dropshipping.
The specific cite in the case was section 58 of the Trade Practices Act, but not sure how you'd look it up now since the TPA has since been rolled into the C&C Act. But at the time of the OzDirect case the TPA was a "free standing" law, and it was section 58 that contained the verbiage often misinterpreted/misrepresented to outlaw dropshipping.