I'm not a lawyer either, but I do deal with HP and debt problems for soldiers.
The vehicle registration document records the registered keeper, not the owner.
Your mate doesn't need to hold a credit licence to lend you a tenner, so if the sale was a private one between two individuals the contract may be valid. However, if the employer sold you the bike on a 'business' basis i.e. the seller was his company, then he would need to have a credit licence, and the contract would need to comply with legisliation and OFT rules. Under these, as the amount is under Â£25k, once you have paid a third of the loan (which you have), even if you are in breach of contract the lender has to get a court order to repossess.
In either case I can't see how he can justify taking possession of the bike anyway, providing you have stuck to your side of the agreement and intend to continue doing so, and the contract doesn't depend upon your continued employment. There's no reason for you to sell the bike. If he thinks he's right, he has a legal remedy and can take you to Small Claims Court, where he will end up losing and paying your costs as well as his own.
The cost of a solicitor's letter may be a good investment to get him to wind his neck in, especially if he's likely to be a persistent nuisance.