Roth Conversion of After Tax Basis in Deemed Distribution

[ERISA1]

Hi - I am speaking with someone who is hurting from having been taxed on a deemed distribution due to failure to an an installment by the end of the cure period. I don't think it can be corrected because payment was made after the cure period.  However, I think I can offer him some consolation by suggesting he repay the loan and make a Roth Conversion of the repaid balance.  There won't be tax on the conversion because he has "basis" in the funds (i.e., the money has already been taxed).  I am concerned however about whether there is a restriction against converting this type of after-tax money.  I can't think of a reason, but I am paranoid. (After all, I work in the pension industry.) 

The literature only speaks of tax-free conversion of  'after-tax contributions'.  Repaid deemed loans are after tax,  but they have a kind of moral taint for failure to repay a loan.  Does anyone think that this type of after-tax money cannot be converted to Roth?  Assume that payment was restored to original sources (e.g., Profit Sharing, Pre Tax Elective Deferrals, Rollover account), and assume the plan allows conversion of vested funds held in any account.  Any problems?

Thanks