Child molester Jeffrey John Hillsley was living in the same house as William Spedding's alleged child sex victims and had an opportunity to do "something" to them, a court has heard.
Spedding, the white goods repairman named as a person of interest in the case of missing toddler William Tyrrell, made a bid for bail in the NSW Supreme Court on Wednesday.
The 63-year-old has been charged with sexually assaulting two girls, aged three and six, in a caravan in Campbelltown in Sydney's southwest in 1987.
His lawyer, Peter O'Brien, suggested Hillsley, a convicted child molester who was on parole had the opportunity to do something when he was living with the children in early 1987.
Spedding is alleged to have assaulted them in April, 1987.
Evidence of abuse was found when the children were examined at a sexual assault clinic.
Mr O'Brien argued medical records didn't show when the abuse occurred and said an injury found on one girl could have happened in the months prior to April.
The court heard Hillsley had stayed at a home with the girls but was thrown back behind bars in 1987 when his parole was revoked.
"As of April, 1987 when these particular offences occurred (Hillsley) was out of the picture," crown prosecutor Rosa Sharma said.
Ms Sharma said Spedding was interviewed in 1987 but the case didn't progress because of the victims' young age.
The girls' mother also did not want to proceed with charges, she said.
Mr O'Brien told the court Spedding's alleged victims were coached by family members to make accusations about him and to make innocent acts look sinister over time.
The accusations first came to light, when one of the children complained of discomfort and said "it was Bill".
Her mother noticed bruising to the child's vagina, the court heard.
A judgment on Spedding's bail application will be made on Friday.
Spedding was charged in April after detectives investigating the disappearance of three-year-old William began looking into him.
The tradesman from Bonny Hills, near Port Macquarie, has denied any involvement in William's disappearance.
