Well, if it's a percentage there's absolutely no reason why it couldn't decrease. If we're talking about "body fat" (without the percentage in it) that's a different story.
You could weight 165 lbs and have a 10% BF => 16,5 lbs of your weight is fat.
You could weight 145 lbs and have a 10% BF => 14,5 lbs of your weight is fat.
So you lost 20 lbs and still have the same BF %, yet your BF decreased. Of course, in this example, you also lost a lot of muscle.
Now THIS is weird. Not possible to gain muscle and lose weight at the same time. Something's not quite right here.
Unless his bones disappeared or he was carrying a lot of water weight, the weight loss has to come from either fat or muscle.
What else could you be losing then????