The Trinidad and Tobago international told the SPL side he did not want to return after appearing at the World Cup finals, claiming he can double his salary away from Westfield.
The Bairns have granted the 24-year-old his wish after the former Caledonia AIA playmaker, who signed in January on an 18-month deal, failed to make a single first-team appearance for the club.
Hughes has already added several fresh faces to his squad, including striker Graham Barrett, and he admits there is now space for another signing.
He explained: "We have got plenty of midfielders but what it does mean is that it frees up Densill's wages and we will have a look.
"We are constantly looking but it is the same scenario, I will not bring in anyone that is not going to bring something to the club.
"I am not going to bring in jersey-fillers. If I do, it will be young guys that are hungry to go and succeed."
Hughes has a good record of bringing young players in to develop, selling some of them on for a sizeable profit - such as forward Darryl Duffy, who left for Hull in January.
He continued: "We have brought in young guys, we have brought them into this environment.
"Darryl Duffy is probably the perfect example, we gave him that stage because it is a great stage."
Hughes admits he had hoped Theobald would have finally made the breakthrough to the first team this term, but is determined to quickly put the player's departure behind him.
He added: "If there is any disappointment it is because I felt this would have been a big year for him, but it's not to be so we need to move on.
"I don't know if the World Cup has gone to his head, you will have to ask him."
Meanwhile, striker Pedro Moutinho insists he is in the best shape possible after what has been a stop-start career with the Bairns due to injury.
The Portuguese player injured his cruciate knee ligaments in January last year and only now feels fully match-fit.
He said: "I feel good but mainly because my body tells me so. During the summer I worked hard.
"I would go the gym in the morning and after that I would go to the beach with friends, have a wee game of football with friends or go for a run in the park.
"I would say this is the best I have felt since I came to Falkirk. When I came here I had not played for three months and I struggled to adjust.
"Once I started to get better I did my knee and I was out for nine months."