Salim Mehajer may have been the victim of a "crude" extortion attempt after a car crash in south-west Sydney last year, his barrister has told a court.

Mr Mehajer was the behind the wheel of his Mercedes AMG driving to court on October 16 when his car was involved in a crash with a Mitsubishi Outlander on Delhi Street in Lidcombe at about 8.40am.

On Tuesday, the 31-year-old former deputy mayor of Auburn council was arrested and charged with perverting the course of justice and conspiring to cheat or defraud over the crash, which was allegedly staged to avoid appearing in court.

Police allege Mr Mehajer was part of a joint criminal enterprise with five other people to set up the crash, including Ahmed Jaghbir, an electrician and business associate who was later charged with an unrelated murder.