The 31-year-old had applied for bail at Waverley Local Court on Tuesday after being accused of staging a car crash last year to avoid going to court for a separate matter.

But magistrate Jennifer Giles on Wednesday refused his application, saying he had not shown cause as to why his detention was unjustified.

Calling it a "mad idea", magistrate Giles poured cold water on Mr Mehajer's claim that he had been the victim of an extortion scheme by the occupants of the other car involved in the crash.

Ms Giles said family members of the other driver were allegedly heard later in telephone intercepts to be claiming $10,000, saying they had helped Mr Mehajer.

Furthermore, she rejected the claim by Mr Mehajer's lawyer Tom Hughes that the case against Mr Mehajer was circumstantial and weak, finding instead "the strands of the prosecution case to be quite damning".

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

He was taken to hospital, while his passenger and the occupants of the other vehicle - two women aged 31 and 32 - were uninjured.

The other driver admitted fault after the crash, the court heard on Wednesday.

Police allege Mr Mehajer, the former deputy mayor of Auburn council, 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.

Mr Jaghbir allegedly said he was instructed to arrange the October collision to buy Mr Mehajer some more time before his scheduled court hearing that day, the court heard.

Mr Mehajer was arrested on Tuesday and charged with perverting the course of justice and conspiring to cheat or defraud over the crash.

The court heard on Tuesday that Mr Mehajer took out an insurance policy on the car for $156,000 nine days before the crash, and his family lodged a claim on that insurance on the day of the crash.

Speaking outside court, Mr Hughes said he anticipated he would receive instructions from Mr Mehajer to make a further bail application in the Supreme Court.

"Let's wait and see what the evidence shows," Mr Hughes said.

"There is no admission made by Mr Mehajer. There is no attribution to Mr Mehajer of any direct involvement by way of surveillance device, telephone intercept or any other product that's been provided to us at this stage."

Ms Giles adjourned the case until March 28.

With Georgina Mitchell and AAP