[Tzunamitom]

Technically speaking he's entitled to 40% of the company's value. In this case it might be very hard to assess the value of your assets (the modification of the Wordpress site may well have produced IP in itself).

You probably DO have a contract stating your equity split - in UK law it is not necessary for a contract to be written in order that it is enforceable. If he were to seek redress in the courts, a likely outcome is that they would order the winding down of the company and he would be entitled to 40% of the proceeds (if any), less the outstanding capital he owes the company.

But you're asking what you should do, so I think the easiest option in this case is to come to an equitable agreement with your co-founder that you are both happy with, and save yourselves a lot of hassle. If necessary bring in a neutral third-party "arbitrator" (mutual friend or someone you both respect) to ensure this is done fairly.

DISCLAIMER - I'm not qualified to practice law.