William's Revenge
After the Bite, Michael's mother committed suicide and he was taken under William's keeping. But Billy wasn't happy with his son, who caused the death of another one of his children.
William projected the new building to have a place for torturing children - specially made for Michael, actually. The room was designed to mimic Michael's room from the other house, so when he would fall asleep, William would take him to the "nightmare" room (Michael would be drugged) and unleash nightmarry robotic versions of the Fazbear animatronics to haunt him at night, giving him some reminders of what he did to his brother. This marked Michael for life, and turned him a better person, actually.
1987
OMG, this is long, isn't it?
Well, in 1987 another FFP opened, with new animatronics. William became Dave again and killed more five children. The place temporarily shut down, reopened in November, but didn't last after Mangle bit someone. Henry was once again without a job.
The problem is that, in this attempt, they recognized Dave as William, so he had to hid himself for his own safety.
Fixing past mistakes
During the time hiding, William started pondering about his decisions in life, and how it screwed everything for him. He caused the death of his family, lasting only him and his older son. That was it! The solution!
If he, William, ruined everything, Micheal could be the one to fix everything! He then sent a letter to Michael, explaining everything he should do.
William was aware of the spirits and possessions, and knew his daughter was haunting CBE&R, so he sent Michael there first. Then Sister Location happened and all that jazz. Or should I say, casual bongos? Kill me.
So, Baby first thought Michael was William, but then she recongnized his brother and saw an opportunity for her and the other sentient robots from the Rental to leave - using him as a "human disguise". To prevent his brother died from this, she did some black magic researchs and found a way to prevent him from dying.
Then Ennard came to be, Michael was fooled into the Scooping Room and became a suit. Ennard tried to live a life as a regular human being pretending to be Michael, but unfortunately the black magic didn't prevent flesh from rotting, so the disguise was ruined and Ennard left Michael' body, now living in the sewers, waiting for It to start shooting, hoping to get a role in it.